should you enter an etf trade if the pre-market S&P 500 index futures are down that morning

JHuber8383

If you have an etf trade that has passed all your criteria for entering the trade and you place a market order to buy on the open the next day, if when you check the S&P 500 index futures the next morning before the market opens they are down should you cancel your buy on the open order and wait till the premarket S&P 500 index futures are up on another day?

lambchops

You are trading an etf, which means there is an opposite to it. I trade only Junior Gold Miners (JNUG & JDST) and I use only one indicator, BOLLINGER BANDS (5,1.4) (my tks to an unknown STOCKCHARTS member) & more importantly I use an Elder Impulse chart. It's only a matter of knowing which one is oversold.

JHuber8383

Lambchops, I don't see how your response answered my question. If the S&P 500 futures are down premarket and the value equals or exceeds the IndexArbitrage value for a sell active state then there is almost 100% probability that SPY that day will fall in value. As SPY is a good reflection of the "market" and the price activity of almost all US domestic etfs and many foreign etfs is correlated to the price activity of the"market" then should you enter an etf trade long that
passed all your criteria for entry with a buy on the open order(lets assume one works and cant be sitting at the computer all day watching the market action) or should you cancel the buy on the open order and wait for a day when the premarket futures are up(assuming the trade still passes all your entry criteria).
Basically I am asking should one enter new long etf trades on a day when the premarket futures are down?

markd

Hi JH,

If this is true:

"if the S&P 500 futures are down premarket and the value equals or exceeds the IndexArbitrage value for a sell active state then there is almost 100% probability that SPY that day will fall in value"

why wouldn't you enter a market on close order and get the discount? Just a thought.

My real question is, if you can't be at the terminal during the day, do you want to mix time frames in deciding whether to take a trade? I'm assuming you want to hold for at least several days or weeks and several points, not several hours for a fraction of a point.

I'm guessing you are trading with the trend, and you are trading either a breakout or a counter trend decline reversal. An overnight move against the trend will not change the trend (unless it is huge and breaks some past support level - maybe in response to some event) so it shouldn't affect your decision. It might mean you are a little early, because sellers are still around, or you might be catching the very bottom of a counter trend move.

A market on open order (any market order really) means you want in now and the price doesn't matter. It suggests you are confident of the market's immediate and eventual direction. And it means you are trading small enough and have a plan to deal with things going the wrong way. If that's not the case, then a market order might not be the way to get in.

If it were me, and I couldn't watch the market to wait for the best entry, I think I'd put in a limit order above a recent high (either the last rally high for a breakout or maybe the lowest high of a counter trend decline) so I know the market is going with me when I get in and have at least a mental stop to get me out. Maybe you have a reason for not using limit orders, but they do reduce risk somewhat more than a market order and should be OK on a liquid ETF. There's a chance you miss the trade, but it seems you are comfortable with that if you are willing to wait for the right overnight S&P action. Again, just a thought.

lambchops

JHUBER ~ You're correct, I did not answer your question, I was simply suggesting what I believe is a better method to enter a trade.

JHuber8383

thanks markd,
the index arbitrage values can be found at http://indexarb.com

markd

Thanks for the link, JH. Interesting reading. It seems the effect of arbitrage is either trend neutral, or if anything, enhances the trend in force. Arbitrage-induced trades against the trend would occur when the futures trend gets a little ahead of itself, so might hold things up temporarily, but not reverse it. What matters to the trend really is longer term accumulation of the underlying equities (the steady removal of stock from the market - even in falling markets - in anticipation of higher prices later - weeks or months usually) and distribution (the steady supply of stock in anticipation of lower prices - even while prices are still rising). What arbitrage tries to capture is excess optimism or pessimism in the futures market compared to the equity market. These excesses are frequent but brief (thanks in part to the arbitrage itself). Bottom line is, for the longer term (weeks or months and points) trader, the influence of arbitrage on your trading decisions should be minimal (except, as I mentioned when it exaggerates a breakdown or breakout in the direction opposite your trade; that should be very infrequent - especially because big counter trend moves rarely happen without warning, so you shouldn't be in, or should have very small positions if you are in).