Page 174 - THE MARKET WHISPERER

170 PART 6 - Indices, Sectors And Crystal Balls

Summary

The market index known as the S&P 500 represents not only the market
direction but also the mood of private and institutional investors, and of
traders. Institutional traders do not buy stocks when the market index
drops, but wait patiently until the index downtrend causes the stock they
are waiting for to drop, allowing them to buy it at a cheaper price after the
correction. When you buy a stock, you should look for support from the
institutional investors. You want their mood to be as happy as possible,
and you want their money to enter the stock you have just purchased.
Don’t expect that to happen when the market index is dropping. Don’t fight
the direction of the market!

SPY – The S&P 500 ETF

As noted, the S&P 500 market index, symbol SPX, is not a tradable index
but denotes in points the state of the stocks that comprise it. Because many
investors, especially those disappointed by funds, are interested in finding
a simple way to link their money to market yields, i.e. to “buy the market,”
the solution for them is to buy the S&P 500 ETF (Exchange Traded Funds)
that follow the market and are known as SPYDERS, bearing the recognized
symbol SPY.

ETFs are financial instruments traded exactly like stocks, and are
therefore given symbols just like stocks. The SPY price is very similar to
its value in points with the deletion of one zero. In other words, if the SPX
stands at 1500 points, the SPY price will be in the vicinity of $150. ETFs are
more sensitive to supply and demand fluctuations.

Unlike the SPX, the SPY can be graphed to show volume, which does not
exist for an index.

ES – The S&P 500 Futures

If I haven’t yet confused you with the difference between the non-traded
index represented by SPX and the tradable ETFs represented by SPY, I will
likely succeed in confusing you now when I present the most important
variation of the S&P 500, represented by ES.

The ES is the S&P 500’s futures contract, or as it is professionally
known: E-mini S&P 500 Futures.

Without going into a detailed explanation at this point of “future
contracts,” I do wish to differentiate between a stock and a futures contract:
a futures contract is a “financial product” which can be bought and sold