EMD: Under The Radar Trades

Most traders are familiar with the S&P 500 E-minis (ES), the DJIA E-minis (YM) and the Nasdaq E-minis (NQ). However, many are not aware of the S&P 400 E-minis or EMD.

The S&P 400 is an index of midcap stocks containing 400 companies that are considered to be medium sized. Medium sized in this context means between 2 and 10 billion of capitalization. These are generally well regarded companies that are not large enough to be included in the S&P 500. It’s a market weighted index meaning that large firms have more of an influence than smaller firms.

If you consider all of the 400 companies represented in the index, they reflect about 7% of total market value of all U.S. companies. Historically, this index has outperformed the S&P 500 due to the components being smaller, thus more nimble in the marketplace. This is unlike the often heavy, slow moving companies of its bigger brother. Many fund managers use the S&P 400 as a benchmark due to this reason. This fact alone lends great appeal to the index itself.

The S&P 400 E-minis are a good way for traders to access this “under the radar” index. The symbol is EMD and it trades in increments of 100 times the index. The minimum movement or tick size is 1 point which equals .10 index points or $10.00 per contract. It trades in the 5-month March quarterly cycle and its symbol for clearing is ME. It trades on the CME which imposes successive price limits of 10, 20, and 30 percent based on the average daily close of the cash index, in the final month of the previous quarter.

S&P 400 E-minis Chart

EMD Chart

Technically, the index is looking bullish right now for swing trading. It has bounced off the lows in the 760 range and is presently in the 817 area, reaching for the 200-day Simple Moving Average of 833.49. The RSI indicator is at 51, allowing plenty of play for further upside at this time. (chart courtesy of stockcharts.com)

Every trader should take a good hard look at EMD right now. There are plenty of opportunities in this under the radar index.

Best Wishes!

David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.