Thursday, April 23, 2009

Searching for Market Direction

These days everybody is searching for clues about where the stock market is headed. I wrote a post a while back about predicting stock market direction. The stock market sure is volatile these days; one week the market is up, the next week it is down. Even on a day-to-day basis, the stock market sentiment can turn around 180 degrees. Although my original post is more than a year old, it remains as applicable today as it did when I wrote it.

I think that we would all like to have some insight into where the stock market is going, and I am not a psychic in this regard. But, there are ways to predict the direction of the stock market. These predictive insights come from the stock futures markets.

The CME Group (formerly called the Chicago Mercantile Exchange) trades stock market futures contracts. Specifically these futures contracts are for the S&P 500 and Nasdaq 100 and are known as equity index futures. By observing the behavior of these equity indices, you can often predict how the stock market will do in early trading. This prediction gets more and more accurate as it gets closer to the stock market opening.

The CME Group has a page that displays the most popular equity index futures in one place. Pay special attention to what is known as the "Globex Flash Quotes". Each week, the Globex trades nearly continuously from Sunday evening through Friday afternoon. This is by design so that US stock market futures can be traded by people around the world.

In the example, green numbers for the S&P and Nasdaq futures predict an up day in the stock market. Red numbers would predict a down day. However, I will warn you that these "predictions" are only reliable for early trading. I am sure that you've seen it happen many times where the stock market opens up in the beginning and ends significantly lower. Or the stock market drops in the early minutes of trading, only to recover significantly before the end of the day.

Another places to look for a predictions of stock market direction are in the International Market indices. These indices tell you how the overseas markets are doing. If the markets in Asia and in Europe have had a down day, it is likely that the US markets will follow suit.

DC

2 comments:

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