Predicting the market with futures

sassa said:

Market watchers can predict whether the indices will rise or fall by looking at the futures.Is this so? If it is,could someone please explain the reasoning behind it and give an example.
The other night I watched the Dow Jones futures and even though the reading was in the negative,the market still opened higher.

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wayneL said:

No! The Futures do not predict anything.

The futures only reflect what is happening in the cash market, plus cost of carry etc.

Now, when the cash market isn't open, the futures will pick up a lead from overseas markets, but as the opening bell approaches, the premarket will be open and bids and asks will start to appear and the futures will adjust to reflect that.

So before the market opens the futures are trying to determine the what the cash market is, but it is not predicting it at all.

Only media muppets talk about the prediction thing because.... well, they're muppets.

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sassa said:

Last week in a thread on International markets,a contributor noted that the Dow Futures were up 40 and that translated into a triple digit gain for the market.He was right-it went up 140+.

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wayneL said:

No! The Futures do not predict anything.

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sassa said:

Wayne,am posting this back as a message of confusion.
By CNBC.com | 05 Sep 2007 | 06:39 AM ET Font size: U.S. stock index futures pointed to a lower opening Wednesday, with investors fretting ahead of the release of crucial data testifying to the health of the economy.

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wayneL said:

*Duel listed companies will be trading in europe.
*There will already be bid and asks in the us stock market
*Some stocks will already be trading prior to opening

So what is happening is that futures are not predicting a lower opening, the market is already effectively trading lower, even though it's not officially open.

In other words, it seems to be predicting a lower open, but in reality it already IS lower.

***** Financial journalists, in the main have no idea. Don't take anything on CNBC as gospel.

Cheers

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