E-mini S&P 500 Futures

The S&P (Standard & Poor) 500 index is made up of 500 of the top U.S. companies, established in its current form in 1957.

It is a capitalisation-weighted and float-adjusted index of 500 large-cap stocks traded on the NYSE, ASE and the Nasdaq National Market System. The Index represents the market value of the total outstanding common shares of the 500 listed companies.

Professional money managers and self-directed investors all over the world reference this index regularly as a barometer of the markets as a whole.

The S&P (Standard & Poor) 500 index is made up of 500 of the top U.S. companies, established in its current form in 1957.It trades by open outcry on the Chicago Mercantile Exchange (CME) from 8.30a.m. – 3.15p.m., Central time, Monday to Friday.

Contract size is $250, with a tick size of 0.1 points ($25.) Calendar spread is 0.05 points ($12.50.)

Composition

The companies comprising the index are selected by committee to be representative of industries in the U.S. economy.

Liquidity based requirements are that a company’s capitalisation is greater than or equal to $4 billion; the annual dollar value traded to float-adjusted market capitalization is greater than 1.0, and that there is a minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date.

Long-Term Performance

The S&P 500 has had negative annual returns in 14 instances over 50 years, giving it a nearly 75% chance of producing a positive year.

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(Source: Wikipedia.com)

Bull & Bear Markets

The S&P has experienced nine bear markets with declines of more than 20%.

When considering all bear markets in history since 1957, the average decline has been 35% spanning across an average duration of 14 months.

The index has also enjoyed a bull market after each correction, with the best stretches far outweighing the worst ones.

On average, bull markets have returned 176% across a span of 68 months.

E-mini S&P (ES)

The e-mini S&P (ES) is a derivative contract established in 1997. It has become a very popular and highly liquid trading instrument.

This contract trades electronically on the Globex platform through the CME.

The contract size is one fifth that of a standard S&P contract at $50 per point, with a tick size of one quarter point ($12.50.)

Contract months for the ES are March (H), June (M), September (U), and December (Z). The last trading day is the third Friday of the expiry month, with trading possible until 8.30a.m. on that day.

Contract rollover occurs on the Thursday a week before the expiration Friday – for the e-minis, this is the second Thursday of March, June, September and December. (If the Rollover month starts on a Friday, the Rollover is the first Thursday of the month.) The next contract becomes the “lead contract” or the “front month”. Even though the previous contract continues to trade until expiration, the majority of trading moves to the next contract.

Trading can take place from Monday to Friday from 5:00 p.m. on the previous day until 4:15 p.m., with a trading halt from 3:15 p.m. – 3:30 p.m.

Most brokers require a margin of $500 per contract for day-trading, and $3,500+ for holding overnight.

Volume

Many of the e-mini futures contracts trade under high volume; the ES is the highest of these, with over 2.2 million contracts traded on average per day, providing excellent liquidity.

Total volume for the June 2014 contract on April 7th. 2014 was 2,177,873. (Source: CME.)

The following chart shows the monthly growth of the contract since inception

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(Source: Wikipedia.com)

Volatilty

The e-mini stock index futures contracts trade nearly 24 hours on all-electronic exchanges, however there are times of the day when increased volume and volatility are present.

The following five-minute chart of the June 2012 ES contract indicate that the times when both volume and volatility are highest coincide with the regular U.S. stock market trading session. The period from approximately 3:00 am (EST) until the U.S. markets open also has noticeable volume and volatility.

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(Source: Wikipedia.com)

Seasonality

The following chart shows seasonal volatility over a 30 year period.

This data shows that there is typically growth through the first two quarters of the year, with a more ranging market in the summer months, followed by a decline in September and October, and a renewed cycle of growth through the last two months of the year.

The seasonal chartsbelow provides an historic reference of past trends and turning points for the market. Squares represent past market lows and circles represent past market highs.

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(Source: seasonalcharts.com)

The seasonal chartsbelow provides an historic reference of past trends and turning points for the market. Squares represent past market lows and circles represent past market highs.


Five Year Seasonal Study:

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(Source: signalfinancial group.com)

Correlation

The following charts show 24 month rolling correlations between the S&P and several other markets. (Source: signalfinancialgroup.com)


Very high correlation between S&P and the DAX index:

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High correlation between S&P and GBP:-

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Lower correlation between the S&P and the EURO:

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Lower correlation between the S&P and the 10 year T-Note:

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As the S&P has such a broad coverage of equities, it tends to be highly correlated with many markets.

Of the markets viewed, the 10 year T-Note is a possible alternative to trade, being less correlated than others.

Volume

The e-mini S&P is one of the highest volume instruments and has excellent liquidity, makig it very suitable for day-trading.

It is most active during the U.S. trading session, and tends to experience intra-day reversal periods, such as 2.30p.m. CST and 7.00p.m. CST. The latter time often sees an influx of bond traders into the market.

The S&P “backs and fills”, so once a trend s apparent, there are opportunities to enter on pull-backs in price.

Alternative markets to trade with lower correlations are the 10 year T-note and possibly the Euro currency.