Sunday, February 24, 2008

S&P 500 Trading

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S&P 500 trading is one of the most popular ways to invest into the market. While you cannot trade the S&P 500 index there is other trading vehicles that allow to trade the index.

Buying stocks from the basket of the S&P 500 index is one of the main ways of investing into the S&P 500 index. If you know that the stock moves along with the index, this is when the index analysis comes handy.

Besides the trading stocks an investor may invest directly into the securities that track the index itself. In this case it would be even more correctly to apply index analysis instead of the analyzing the security that tracks the index. With introduction of the Exchange Traded Funds (ETFs) a trader may buy and sell a stock that tracks the S&P 500 index. SPDRs (SPY), commonly called as “Spider”, stays for Standard & Poor's Depositary Receipts. The SPDRs track the S&P 500 performance and is traded under the SPY ticker on the AMEX.

The common mistake could be to analyze the SPDRs forgetting that this is a tracking stock and it moves in the direction of the benchmark index. If the SPDRs technical analysis tells you that it should be down while the S&P 500 technical analysis point to the up move, where do you think the SPDRs will go??? Will it follow your analysis against the index move which it tracks??? I don’t think so… As you may see it would be logical in this case to analyze the S&P 500 index and use the SPDRs analysis as a confirmation only.

There are other less popular ETFs that track the S&P 500 index and that could be traded on the base of the index technical analysis:

iShares S&P 500 (symbol: IVV),
S&P 500/BARRA Growth Index Fund (IVW),
S&P 500/BARRA Value Index Fund (IVE).
Besides the ETFs there are other trading vehicles that attract more risky traders who analyze the indexes:
S&P 500 index options,
SPY options,
S&P 500 e-mini futures.
The Rydex and ProFunds funds that tracks the S&P 500 index has become very popular as well.

As you may see the S&P 500 trading is very popular among the investors and the index technical analysis is one of the main sources of the info for many of them.

1 comment:

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