Saturday, November 21, 2009

Video worth watching...

Sell Signals on Indexes

Friday, November 20, 2009

SP 500 persepctive

With a large majority of third-quarter earnings in the books (87% of S&P 500 companies have reported for Q3 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to its Q3 2009 trough, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings bottomed and are moving up sharply.

Monday, November 16, 2009

Market Observations - Under the surface - not what it appears to be

Just like Bernake, if you look under the surface you can see that there is something masquerading as an impostor you always knew was lurking. Well, in my charts below you can see, this rally is not what it is cracked up to be. Additionally, we only need the box trades to close on both the ES and TF for the market to be set up for, at the least, a major pullback. Would be nice if the dollar could get into the 74.50 and below or above trendlines, confirming an unsustainable position in the markets.

Sunday, November 15, 2009

SP500 Futures Explained...

Here's a brief description and background on the E-Mini/S&P 500 futures contracts, since we get asked practically every day what they are.

A Brief Introduction

The Chicago Mercantile Exchange (CME) introduced the S&P 500 futures contract back in spring of 1982. The S&P 500 futures market has now become today's most actively traded equity futures contract. The S&P 500 futures contract represents roughly 90% of all US stock index futures trading. The S&P 500 is comprised of the largest 500 listed stocks, therefore allowing you to easily and effectively buy or sell an extremely well diversified portfolio of stocks in one stock index futures contract. This allows you to make trading/investing decisions based on your overall outlook of the stock market. Here's a couple advantages of trading the S&P 500 & E-Mini stock index futures contracts:

You can easily participate in broad market moves, with one trading decision (one chart to look at) - instead of having to choose individual stocks (looking at many charts).
You can easily protect the value of a portfolio during adverse markets without incurring high transaction fees.

In October 1997 the E-Mini S&P 500 futures contract (symbol = ES) was introduced - which is the same as the S&P 500 (symbol = SP), except it's one fifth the size in terms of point and tick size, discussed shortly.

Exactly What Is The S&P 500 Index?

Most all of you know what the Dow Jones Industrial Average (DJIA) Index consists of; The DJIA is made up of only 30 blue chip stocks. The S&P 500 index on the other hand is based on the stock prices of 500 different companies - generally 76% industrials, 12% financial institutions, 10% utilities and 2% transportation. As you can readily see, the S&P 500 is much more representative of the overall market than that of the DJIA. Also, the market value of the 500 firms that comprise the S&P 500 index is equal to roughly 80% of the value of all the stocks that are traded on the New York Stock Exchange.

The Value Of The S&P 500 Futures Contract

The value of the S&P 500 futures contract can be calculated by multiplying the futures price by $500. For example, if the S&P's are trading at 1089.50, the value would then be $500 X 1089.50, or $544,750. The minimum price fluctuation (tick) for the S&P's are .10, so a tick up or down is worth $25 per contract. A full point has 10 ticks in it, which is worth $250 per contract (.10 X $25 = $250). The E-Mini S&P 500 is on the same price scale as the regular (full) S&P 500, the difference lies in the tick and point values. The E-Mini S&P trades in .25 ticks and is worth $12.50 per tick; and a point is worth $50 ($12.50 X 4 = $50). As you can see the E-Mini's are one fifth the size of the full S&P 500 contract.

As you can readily see by now, since the S&P 500 futures market represents roughly 90% of all US stock index futures trading, you can use the S&P 500 futures contract to try and forecast the market's overall direction. You can in turn position yourself with a profit from such a move. That is, of course, if you're right on the market move.

What Are Futures Contracts?

A future's contract is an agreement between the seller and buyer to respectively deliver and take delivery of a commodity at a specified future date. But in the case of the S&P 500 futures contract, the commodity is a portfolio of stocks represented by a stock price index. The delivery is actually a cash settlement of the difference between the original transaction price and the final price of the index at the termination of the contract. More accurately, the cash settlement occurs in the increments daily until the termination of the contract, as the contract trading price changes.

The futures contract price responds to the changes in the overall underlying index, with the index recalculated as the component stock prices change. The prices of the futures contract looks very similar to the index price itself; the future's price may be higher or lower than the index itself. While the future's price does not move point-for-point with the index, it does track it closely enough to act as a very effective proxy.

How Much Does It Cost To Trade The E-Mini's and S&P 500?

The margin requirements to trade the S&P 500 is quite small compared to the overall value of the contract itself. Margin requirements to keep the S&P 500 Overnight (you need roughly $22,000 per contract to keep an S&P overnight) is much more costly than it is to Day Trade the S&P 500 (you need roughly $10,000 per contract to day trade), but it really depends on the discount futures house that you trade through. The firm I recommend only requires $5,000 to day trade the S&P and $12,000 to keep an S&P overnight. The E-Mini S&P's on the other hand are much less expensive to trade. It costs roughly $2,500 to day trade the e-mini S&P's and roughly $7,500 to keep an e-mini S&P overnight. We highly recommend to all students to start off trading the e-mini S&P's (if you ever decide to trade them) until you fully understand what they're doing before moving on to the full S&P 500 contract. We think that's a smart move for anyone just starting out.

Future's Risk

Please Remember: Trading the E-Mini's & S&P 500 markets (or any market for that matter) are not without risk and as a trader/investor you must accept the possibility of being incorrect in your predictions (trades) of the market. The opportunity to profit from trading futures can be very substantial, however keep in mind that the risk of trading futures can also be very substantial. And please remember, any market you decide to trade you must use stop losses (ISL's) - as you already know by now this will help limit your losses to your own personal comfort level .

"Why trade the full and E-mini S&P 500/Dow or Nasdaq futures markets?"

  • There is NO market research required.
  • *Futures margin requirements are a fraction of those needed for day trading stocks ($2,000 vs. $25,000).
  • You can profit no matter which way the market moves, up or down. Bad market news can be real good news to you.
  • Great potential for daily cash flow.
  • Tremendous leverage, liquidity and daily volatility for maximum profit potential.
  • There is NO Up tick rule.

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