You have to keep in mind that an index is an aggregate of the stocks which comprise it and that in most cases there are differences in how much one stock’s price moves influence the index vs another. The S&P, for example, is a market value weighted index. That means the stocks with the largest market cap are going to have more influence on index changes than the stocks with the smallest market cap. You need to know how an index is calculated to understand the impact of prices changes in its constituent stocks will impact it.
As to the idea of key levels, while it may seem strange to think that a calculated index has significant levels, the mechanics of the market are such that they do. Firstly, becuase indices can be traded in their own right via futures, ETFs, and options levels do have meaning. Secondly, if people think a market level is significant then they will buy or sell the stocks underlying the index, forcing the index to move.
And by the way - I notice that there is a Nasdaq 100 Trust (never seen this before). From what I have read it does not move exactly in tandem with the Nasdaq 100 i.e. it moves / responds slower and is being constantly rebalanced by someone (probably by one of those ‘arbitraguers’ that you mention). Is that the same thing as the difference between the DAX and the DAX 30 for example?
That trust is an EFT - the QQQs. It is rebalanced by those who manage it (not the arbs) to ensure that it matches the performance of the the index. It is not the same as a futures contract. An ETF is actually ownership in a porfolio, whereas a futures contract is an agreement to exchange assets in the future.
Also - in the case of the DAX - you have an extra hour every night and every morning to trade the DAX 30 i.e. before the actual DAX opens for trading (same with all of the indices and futures except that the US futures indices trade 24 hours). Is there anything in the difference between these trading times that you should be monitoring for the next session? Does the change in the futures index mean anything to the actual index when it opens?
Yes, the value of the futures are an indicator of where the market will open. If the DAX futures are up 100 points before the stock market opens, then it probably means a big pop when it does open. Why? Because the DAX futures allow people to react more quickly to news and events that happen outside normal market hours. That action will translate through in to the stocks (and thereby the index) once trading starts.
And - now that I am typing this message - I just had another thought. If I understand (at least part of this) correctly - then if you are trading the DAX futures for example - should you then not rather be tracking the DAX itself in making trading decisions on the futures index? In other words - the DAX itself should be the first to respond not so?
The futures will probably react first to events because it’s easier to trade a futures contract (1 transaction) than to trade the index, which would mean trading all or at least many of the component stocks. When things are more stock-specific, though, then the index will probably move first with the futures lagging a little.
And another thing: you will also notice that the European indices (again almost 99% of the time) follow the movement of the DOW, S&P, and Nasdaq. Why is THIS? I mean - the same companies that make up the US indices ARE NOT the same companies that make up the European indices (bar one or two of the big ones that have dual listings). Is this just due to sentiment or is there some underlying technical reason for this?
The markets are very global and macro things that impact one market tend to impact the others as well.
AND MORE: I also noticed yesterday that as the US indices fluctuated - so did the value of ???/USD or USD/???. At some point yesterday there was huge move on anything USD and at the exact same point there was a huge spike in Gold, Silver, Oil, and the indices. And - the best part - there was no news release or anything of the kind. Does this mean anything? Which ‘spiked’ first - the indices - or forex - and why (the only thing that I know of was the expiration of the July oil contract but that only came later in the day) (I’m not even sure I know what that means but again - its got something to do with futures I know i.e. oil futures)?
There was a lot of different stuff flying around the markets on Friday in the form of rumors, options expiration, earnings, and a whole slew of other stuff. It was pretty crazy.
An even more perplexing question (for me anyway): is technical analysis of these indices worth anything at all? I don’t know why but it just ocurred to me that the movements / values of these indices are supposed to be based on the movements / values of the underlying stocks and the chances of the cumulative profits / losses / values being exactly equal to some or the other fibo level or pivot point for the index are not, in my opinion, very good AND YET having said that - they definitely trade to these points most of the time. How is this possible?
As I’ve noted at several points, because the indices are tradable in their own right, then analyzing them directly is worthwhile. Even if they weren’t traded, as in the old days, it would still be worth the effort to analyze them. As I noted earlier - and you brought up as well - there is the sentiment value of an index which can influence the trading in the shares which underly it.