Recent divergence on the Emini index futures and what it reveals

Recent divergence on the Emini index futures and what it reveals

Recent divergence on the Emini index futures and what it reveals and why you should watch all three indices.

00:16

Introduction and index futures overview

00:16

The speaker begins by addressing a microphone issue and confirms the screen is visible to the audience. They welcome viewers from various countries, including New Zealand, Denmark, the UK, and Ireland. The speaker emphasizes the importance of monitoring all three major index futures—YM, NQ, and ES—when trading index futures, suggesting it is beneficial to have all three charts open simultaneously.

00:52

Explaining divergence in index futures

00:52

The speaker explains that YM represents the Dow Jones futures, NQ is the Nasdaq 100, and ES is the S&P 500. They highlight a recent divergence among these indices, which typically move together with similar price patterns and volume. However, in the last few days and again at the market open today, these three have shown differing movements.

01:23

Recent divergence examples in NQ vs YM and ES

01:23

The speaker highlights recent market activity, noting a strong wide-spread upward candle from yesterday and a similar pattern today with good volume. However, there is a divergence observed in the Nasdaq (NQ), where despite a big up day followed by a decline at the open, there was a reversal with a strong rally and decent volume. This behavior contrasts with the movements in the Dow Jones (YM) and S&P 500 (ES), indicating differing trends across these indices over the last few days.

01:57

Intraday tracking and index volume analysis

01:57

The ES and YM markets have been moving together closely, while the NQ has been out of sync. Recently, however, the NQ and ES have started tracking upward together, showing bullish but weak movement. The VIX has been congested on faster timeframes but is beginning to drop, suggesting a potential increase in volatility. At the market open, there was a significant surge in volume and volatility as the physical market aligned with the electronic Globex market, with prices trading within the established range.

02:56

YM and ES rally with volume support

02:56

The market is rallying away from congestion with significant volume and price resistance observed, particularly on the YM. The ES shows a similar pattern, despite some large down candles and negative news. Both indexes are starting to rally, with the ES clearing key resistance levels and moving beyond the volume point of control.

03:22

NQ different price action and market clues

03:22

The speaker discusses a rally developing in a low volume node supported by a trend monitor, indicating positive momentum. They contrast this with the Nasdaq 5-minute chart, which shows a different picture with steady upward movement and no volatility. This difference across indices can provide clues for traders about market strength and sentiment. Factors such as big company releases may influence one index’s performance differently than another, and observing these behaviors helps traders decide whether the market is generally bullish or bearish.

04:28

Importance of monitoring all three indices

04:28

The speaker emphasizes the importance of monitoring multiple trading instruments simultaneously, such as index futures, commodities, risk currencies, and forex, to gain a comprehensive view of market sentiment. They highlight bullish momentum developing in the Nasdaq (NQ) and demonstrate tracking it across multiple timeframes, from 15 seconds to daily charts. The discussion also introduces the VIX as a factor influencing this momentum.

05:26

Using VIX for sentiment analysis and trends

05:26

The segment explains the VIX as a key sentiment index reflecting market risk through the balance of puts and calls in the options market. It highlights the inverse relationship between the VIX and stock indices, where a falling VIX signals rising indices and reduced fear. The speaker recommends having the VIX on trading screens as a crucial intraday indicator, alongside other tools like trend monitors, pivots, and volatility indicators on platforms such as TradingView. Examples of trend signals and market congestion are briefly introduced to illustrate how traders can use these tools for breakout or trend-following strategies.

06:55

Market congestion, volume, and breakout signals

06:55

The segment discusses price action during a market congestion phase, highlighting key observations such as price spreads and reduced volume. It notes minor anomalies but overall decent support levels as indicated by multiple lower candle wicks. The breakaway occurs on good volume, confirming a genuine move rather than a fake-out, transitioning into a low volume phase. The explanation emphasizes the importance of reading market conditions not only through volume and price at the live edge but also by recognizing transitions between congestion and trending phases. The use of pivot points derived from three-candle patterns helps identify short-term strength or weakness and anticipate whether the market will continue higher or form another pivot low.

08:18

Pivot points and accumulation distribution indicator

08:18

The speaker explains how congestion phases in price action are identified using pivot highs and the accumulation distribution indicator, which visually highlights levels of support and resistance by varying line thickness based on how often those levels are tested. Although some levels may not be very strong, breaking through them provides a solid platform supported by decent volume. Trading breakouts from congestion zones offers advantages, including clear areas to place stop-loss orders below key levels, which helps protect positions if the market reverses.

09:46

Stop-loss placement and trading congestion zones

09:46

The speaker explains the importance of using volume in trading to validate price movements. When price and volume agree, the signal is clear and reliable; if not, the volume is low and the signal is weaker. This approach helps define stop-loss levels clearly, making risk management straightforward. The discussion includes observing volume price analysis (VPA) with widening candle spreads, indicating decent volume and reliable trading signals.

10:56

Volume price analysis on multiple timeframes

10:56

This segment explains a simple example of volume price analysis applied to multiple candles instead of analyzing them individually. It emphasizes building a complete picture by gradually increasing the number of candles considered and checking different time frames. The discussion also mentions examining the VIX and its recent movements.

11:29

VIX congestion and index pause analysis

11:29

The speaker discusses recent market movements, noting a slight upward move followed by congestion in the VIX, which is causing a pause in the indices. They then shift focus to examining tick charts, preparing to analyze the data in more detail.

12:06

Tick chart overview and session pause

12:06

The speaker requests a brief pause to switch off momentarily.

By Anna Coulling – creator of volume price analysis