Don't Ignore This Chart!

Comparing Candlesticks for SPY and $SPX - SPY Reflects a True Open


Even though the S&P 500 and the S&P 500 ETF (SPY) track quite well over the medium-term and long-term, daily candlestick action can be quite different. The S&P 500 is an index that prints a price seconds after the market open. More often than not, the S&P 500 prints a price **before all of its components have opened** for trading. This first price does not always reflect market realities, especially when a big gap is expected. Candlesticks on Friday and Monday are quite different for SPY and $SPX. The S&P 500 formed a small white candlestick with a long upper shadow on Friday and a long white candlestick on Monday. Judging from these candlesticks, the S&P 500 showed a weak buying pressure on Friday and strong buying pressure on Monday. **SPY candlesticks paint a completely different story**. SPY formed a long black candlestick on Friday and a small white candlestick on Monday. SPY price action reflects strong selling pressure on Friday and weak buying pressure on Monday. Which one are we to believe?



In contrast to the S&P 500, the S&P 500 ETF open is based on an actual trade. Shares exchanged hands at the opening prices. The S&P 500 open is not based on an actual trade, but rather the index value at the time. Notice how the S&P 500 produced a small gap and surged higher the first five minutes on Friday and Monday. In contrast, SPY produced a big gap on both days. SPY simply opened where the S&P 500 ended after the first five minutes of trading. **A true open makes all the difference with candlesticks**. SPY moved down after its open on Friday and traded slightly higher after its open on Monday. As far as I am concerned, SPY produces more robust candlesticks than the S&P 500.

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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