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Hello DH,
I too have had mixed results substituting SP cash for futures, to the
point that I don't even try it. Howver, you example about the open
being = to close of previous day is a quirk of Q.Chart. My other data
feeds are not like that. You can get around it by using 405 min
charts and I think you will see a real opening value.
--
Best regards,
Jim Johnson mailto:jejohn@xxxxxxxxxxxxxxxx
Thursday, March 21, 2002, 5:55:59 PM, you wrote:
>> The daily-bar correlation between SPY and the cash index
>> sucks, although the overall movements agree (if the cash index goes
>> up, SPY will go up, but the high and low versus the open and close
>> won't have any correlation). It was such a consistent loser that I
>> tried fading the signals with SPY, but that didn't work either.
>>
>> There seems to be an arbitrage opportunity here, but I don't know
>> what it might be.
D> The following explanation is somewhat oversimplified. It doesn't account
D> for pre-open activity on the electronic exchanges, but the general
D> concept explains why the index quotes you see are WRONG early in the day
D> and why that "arbitrage opportunity" is an illusion created by the quote
D> services.
D> The quoted SPX cash index doesn't have a 'real' open. That's because it
D> takes a few minutes for all 500 stocks to start trading. The index is
D> calculated using yesterday's closing value for all stocks that haven't
D> traded yet today. So, the first tick of the index is usually pretty near
D> yesterday's close. With some quote services it's identical. Likewise, if
D> the quoted 'open' on a daily bar is near the high or low, the high and
D> low are suspect as well. The only reliable daily number for the SPX
D> index is the close. If you are using the daily open, high and low of the
D> index in a system, your results will be flawed. If the system makes
D> money on the daily index, but loses money on the futures or the index
D> shares, that's just more proof that your system is based on incorrect
D> assumptions.
D> Let's see if this daily SPX chart is small enough to make it through the
D> o-list filter. It shows how every open is exactly equal to yesterday's
D> close on quote.com. We know that can't be true. Then look at those bars
D> where the open is exactly the high or low of the day. We know those
D> aren't true either. So, you may backtest a system that looks just peachy
D> using that data but you'll lose your a** if you try trading it.
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