Support and Resistance in Index Bets

[InReality]

Hi

I have a question about support and resistance levels.
I understand the reasoning behind using them in trading individual stocks.
What I dont understand is why they would work in relation to bog standard stock index bets .
Say the FTSE 100 Cash on CMC seems to have a S/R line today at 5000.

What is this based on ?

Nobody is actually buying or selling "FTSE 100" - or are they ?

Tnks
Joe

 

[Hotch]

Oh no? http://www.euronext.com/trader/cont...fications-2830-EN.html?euronextCode=Z-LON-FUT

 

[InReality]

I'm still learning so it was a genuine question !

I'm taking about the basic FTSE index , not what a SB company gives us.

How can there be lines of support and resistance in actual FTSE index itself , as it is an aggreation of the values of stocks ?


Do people say I will buy sainsburys because the FTSE is near 5000 ?
And others say oh I will sell sainsburys because the FTSE is near 5000 ?

And hence the FTSE itself goes up / down because sainsburys is say 10% of its composition ?

I'm probably missing something basic but I don't understand the logic relationship between real stocks and S/R lines in the index behind it ...

 

[InReality]

anyone ?

Mods is there a better forum for this question ?

 

[wackypete2]

Buying is done as an index future in the futures markets. The futures will determine S/R levels. You can go 'round and 'round with this. Buying a future contract is akin to buying a basket of the stocks in the index.

Peter

 

[Hotch]

You didn't seem to quite get my point, so here goes.

Nobody is actually buying or selling "FTSE 100" - or are they ?

Yes, they are.

 

[cr6196]

i would add that something like 70% of mutual fund money is invested in indexes i.e they buy all the stocks in the index...although, this doesnt mean that 70% of mutual fund money is in index funds...you can't charge someone 3% for that though. i can see the point your getting at though but in this day and age most stocks correlate closely with the index.

 

[Shanghai]

Hi

I have a question about support and resistance levels.
I understand the reasoning behind using them in trading individual stocks.
What I dont understand is why they would work in relation to bog standard stock index bets .
Say the FTSE 100 Cash on CMC seems to have a S/R line today at 5000.

What is this based on ?

Nobody is actually buying or selling "FTSE 100" - or are they ?

Tnks
Joe

You have a good point. The indices move because of movements in the underlying instruments. As a result I don't consider that support and resistence in the indices is as significant as support and resistance in individual stocks. However one of the reason that support and resistance often works is that many traders look at the same things including indices so support and resistance levels in indices still influences some buying and selling decisions in the underlying instruments to an extent.