Basic Techniques  |  JUL 2004

Where Will The Markets Open? by Ihor Vysotskyy

Where Will The Markets Open? by Ihor Vysotskyy Here’s how you can use fair value to determine where the market will open. Turn on CNBC before the market opens and you will see the S&P futures quotes. How important are they? If you are an experienced trader, you know that the Standard & Poor’s 500 futures contract, which is based on the S&P 500 index, is a valuable forecasting tool. But what exactly is the connection between the S&P 500 index and futures on this index, and how can this connection help define where the market will open? FUTURES VS. CASH The S&P 500 is a capitalization-weighted index with an aggregate market value of 500 companies that represent major industries. The S&P 500 futures contract is a commodity contract based on the S&P 500 cash index. It represents the “obligation to deliver” the value of the index on a certain future date (the expiration date).

by Ihor Vysotskyy