Indexes
Market Analysis always leads back to the Indexes; an index is similar to an ETF except that traders can not "own" an Index like they can "own" shares of an ETF.
There are a number of important Indexes that should be analyzed daily for insight and warnings; opportunities and risk management. I understand that you may not have access to see all the indexes - so if you can not see them it’s ok. There are other tools we can use.
The markets are all tied together; the influence of bonds or the dollar (or the VIX or the energy index like crude) can influence the trading day. With intermarket analysis we want to examine the things to be important - using whatever tools you have access to.
In this post I will name and provide examples of indexes - just keep in mind that we can examine indexes through a variety of products; it may be through an actual index or through an ETF of that index or even though a futures market … but what ever you have access to will be better than nothing.
Market Indexes
S&P-500 = ES | SPX | XSP| SPY
NASDAQ 100 = NQ | QQQ
Russel 2000 = RTY | IWM
Dow Jones = YM | DIA
Volatility index
CBOE S&P Volatility = VIX
Dollar index
USDX Index = DXY
OIL index
Oil Index = CL | XOI | USO
Gold / Silver index
Gold and Sliver Index = GC | XAU | GLD
Bonds & Yields
Bonds and Yields = TLT | SHY | TNX | IEF | ZB | ZN | ZT
Starting the Day
When preparing for the trading day it is helpful to evaluate the indexes for any major news and for any major pivots that may be hit today. A strong reversal in bonds (for example) could cause a strong reversal in the S&P futures (especially when we are near the HOD or the LOD already).
Add time to this when considering these various levels. If "stocks" (the /ES or the /NQ) and "bonds" (the /ZB or the /ZN) and yields (the 2 and 10 year yields) and the dollar index are all nearing a reversal zone ... and it's almost time for a new hourly candle - it's very likely that the market is going to get that reversal.
Do not ASSUME to know that a move up in something is going to make something else move. There are periods of time in history where any move in the DXY (higher) would cause an immediate move in the NQ (higher) but after a few months we quit seeing that correlation. There are periods of time in history where an immediate move in the DXY (lower) would immediately make the ES move (higher) but after a few months we quit seeing that correlation.
What happens in an index and how that affects other indexes is not always something that is set in stone. We have to approach this with an open mind and ask questions. Is there a particular index that is making other indexes move? Are they moving in sync - or are they moving the opposite of in sync?
What Moves Markets?
Economic Data Releases:
The release of economic indicators such as Gross Domestic Product (GDP), employment data, inflation, and interest rate decisions can have a significant impact on the markets.
Central bank actions:
The actions of central banks, such as changes to interest rates or monetary policy, can have a major impact on market sentiment and pricing.
Geopolitical Events:
Political and military events, such as elections, wars, and diplomatic tensions, can create uncertainty and affect market performance.
Corporate News:
The performance and financial health of individual companies can impact the broader market. For example, the release of earnings reports or major company announcements can cause the stock price of that company and the wider market to move.
Natural Disasters:
Natural disasters, such as hurricanes, earthquakes, and droughts, can disrupt supply chains and impact economic activity, leading to market movements.
Market Sentiment:
The collective mood of market participants, including investors, traders, and analysts, can drive market behavior, especially in the short term.
Market rumors and speculation:
Unverified rumors and speculation can quickly spread in financial markets and can impact market sentiment and pricing. Often times this can circle back to market projections for a rate hike or a rate cut.
Regulatory changes:
Changes in government regulations and policies, such as tax reforms or changes to trading rules, can impact market performance. One thing that stands out here is the changes to the US trading: 24 trading, removal of PDT and increased expirations for equites stands out as changes to the regulatory space that impacts markets.
What will be the next regulatory change that impacts traders? We want to stay on top of this topic.
Disruptive technology:
The introduction of new technologies can disrupt traditional business models and create new investment opportunities, leading to market movements. AI has been the largest disruption in my life time but Quantum may be the next one to hit.
Even smaller topics have impact; such as drones and EV’s, SMR’s, Pilot-less trucking and robots. Within a given space (like AI) there are disruptors such as Agents or cheaper compute abilities. We want to stay on top of disruptive technology.
Consumer confidence:
Consumer confidence is a key indicator of economic health and can impact market performance. For example, declining consumer confidence can indicate weaker consumer spending, which can impact market performance. Measuring consumer confidence allows economists the opportunity to anticipate improving or declining conditions and can change the forward outlook for companies earnings.
Global economic conditions:
The global economy is interconnected, and economic conditions in other countries can impact market performance. For example, a recession in one country can impact exports and economic activity in other countries, leading to market movements. Employment, Interest Rates, Exports, Elections, Court Cases … other countries are tied to their economic data just like the US markets are tied to their data.
If there is war, famine, natural disasters in other countries that impact their ability to export / import it effects the world. Global banking means contagion risks that can spread to other nations banking segments.
CTA’s
This description is from GammaLab. I often use their CTA charts for my analysis so I am using their description here as a nod to them.
Commodity Trading Advisors are professional investment managers, typically structured as hedge funds or managed-futures programs, that trade liquid futures, options, and foreign exchange markets.
Despite the “commodity” in the name, their universe spans far more than commodities: equity index, government bond, interest-rate, and currency futures all feature heavily.
The vast majority are systematic trend followers. They rely on algorithmic, computer-driven models to identify and ride directional moves, buying what’s rising and shorting what’s falling, rather than making discretionary calls on value.
