Friday, December 11, 2009

SCHB Revisited

Yesterday I mentioned the possibility of using Schwab's Broad Market ETF SCHB, which trades commission free for Schwab customers, as a proxy for the SPY.
SCHB is shown above while SPY is shown below on identical technical settings.
After looking at the intraday action in SCHB over the past few days, I've been struck by how well it reacts to the intraday pivots, one of my favorite technical support and resistance indicators.
And, although the parabolics actually generate smoother signals than the SPY, that's probably because of the volume differential. . . SPY traded 138M Thursday, SCHB a paltry 164K.
It's clearly in Schwab's interest to maintain a close correlation in price dynamics between SCHB and SPY (and/or VTI) and I suspect that there are trading mechanisms in place to assure that SCHB doesn't get too far off course too often and become an arbitrage baby.
That's good news for Schwab traders who can trade SCHB (for free) just as they would SPY, with relative confidence in the technical alignment of the two vehicles.

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