S&P Midcap Trading Strategy (S&P 400 Index): Backtest, Video Overview, and Practical Example

Stock indexes are widely used as benchmarks for tracking a basket of stocks within a particular sector or segment of the market. Investors use the indexes to assess the overall health of the sector, they compare the performance of their own holdings, or they simply have a sector trading strategy. In this article, we look at a S&P Midcap trading strategy.

The S&P 400 index is a stock index that tracks the performance of 400 mid-sized companies in the US stock market, reflecting the distinctive risk and return characteristics of this market segment. The index was formed in 1991. Stocks in this index have a capitalization between $3.6 and $13.1B.

To know more about the S&P Midcap 400 index, read along.

Table of contents:

What is the S&P 400 Midcap index?

The midcap index is a stock index that tracks the performance of stocks that qualify as mid-cap companies — stocks with a market capitalization between $3.6 and $13.1B. There are several indexes for tracking mid-cap stocks, including the S&P Mid-Cap 400, Russell Midcap, and Wilshire US Mid-Cap Index. But the most widely referenced is the S&P Mid-Cap 400.

The futures contract, E-mini S&P MidCap 400 Futures, is one of the leading index futures traders use to hedge their exposure in the US stock market or speculate in the direction of the market.

Formed in 1991, the S&P 400 measures the performance of 400 mid-sized companies in the US stock market, reflecting the distinctive risk and return characteristics of this market segment. The index, which is very different from the S&P 500 index, provides investors with a benchmark for mid-sized companies.

For a company to be added to the index, the following criteria must be fulfilled:

  • The company must be based in the United States.
  • Be listed on a stock exchange.
  • Must possess a minimum investable factor of 0.10.

The index is market-cap weighted, meaning that companies which more valuation will have a larger impact on the index. The index is recalculated and balanced in real-time quarterly in March, June, September, and December.

What is the E-mini S&P MidCap 400 futures?

The E-mini S&P MidCap 400 futures are financial derivative products that represent a contract to buy or sell a specified amount of the S&P MidCap 400 index on a future date, at a pre-agreed price. The index consists of 400 companies with midrange market capitalization — between $3.6 billion and $13.1 billion.

With the E-mini S&P MidCap 400 futures, the underlying asset is the S&P MidCap 400 Index to the tune of $100 x the index’s current value. The contract trades on the CME Globex platform and allows you to take positions on the direction of the S&P MidCap 400 index, either to hedge your exposure in the US equity market or to speculate and profit from price fluctuations of the index.

What is an E-mini S&P MidCap 400 futures strategy?

An E-mini S&P MidCap 400 futures strategy is a method or technique for trading the S&P MidCap 400 futures market. It involves technical and fundamental analyses for market timing, position sizing, and risk management.

To trade index futures profitably, you must have a solid trading strategy. Your strategy for E-mini S&P MidCap 400 futures should have precise entry and exit signals, as well as risk management techniques. You may have a strategy for speculating or hedging risks with the index futures, but you can also do arbitrage or spread trading.

What is an E-mini S&P MidCap 400 futures strategy?

An E-mini S&P MidCap 400 futures strategy is a method or technique for trading the S&P MidCap 400 futures market. It involves technical and fundamental analyses for market timing, position sizing, and risk management.

To trade index futures profitably, you must have a solid trading strategy. Your strategy for E-mini S&P MidCap 400 futures should have precise entry and exit signals, as well as risk management techniques. You may have a strategy for speculating or hedging risks with the index futures, but you can also do arbitrage or spread trading.

What is the seasonality of E-mini S&P MidCap 400 futures?

Seasonality in the financial markets refers to an asset’s price moving in a fairly predictable manner during certain times of the year, which can be months or seasons such as winter and summer.

According to the chart below, the S&P 400 Midcap index tends to perform better in the winter and spring months than in the summer and fall seasons.

E-mini S&P MidCap 400 futures strategy
Source: Equity Clock

The 5 largest holdings in the midcap index

Below are the 5 biggest holdings in the index, but this might change by the time you read this:

  1. Molina Healthcare, Inc. (MOH) This is a healthcare provider offering managed health care services to low-income families. It is subdivided into four segments namely Medicare, Marketplace, Medicaid, and Other. As of December 31, 2021, it serves about 5.2 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs in 18 states. Molina Healthcare has a total market cap of $18.58B as of July 28, 2022.
  2. SolarEdge Technologies, Inc (SEDG). SolarEdge Technologies Inc. designs and sells inverters, communication devices, and most smart energy management solutions to customers across the globe. Its market cap as of July 28, 2022, is $18.56B.
  3. Bio-Techne Corporation (TECH). The company develops and manufactures instruments, life science reagents, and services for diagnostics, research, and bioprocessing markets across the world. The company’s operations are subdivided into Diagnostics & Genomics, and Protein Sciences. As of July 28, 2022, Bio-Techne has a market cap of $15.04B.
  4. Fair Isaac Corporation (FICO). This is a tech company that offers a wide range of software solutions to companies around the world. It designs and develops software, analytics, and data management products and services that enable businesses to enhance, automate, and make good business decisions. Its operations are divided into two segments namely Software and Scores. As of July 28, 2022, the company has a market cap of $11.60B.
  5. Cognex Corporation (CGNX). This company offers machine vision products to customers around the world. These products are used for tracking, identifying, inspecting, and locating items like mobile phones and automobile tires during their manufacturing processes. The company’s market cap as of July 28, 2022, is $8.74B.

However, by the time you read this article the components might have changed. The stock market is extremely dynamic and companies come and go. To understand the significance of this, please read Hendrik Bessembinder’s pretty interesting report from 2017 that made the headlines in all financial magazines:

If you are a trader or investor, we strongly recommend reading this post! The answer is probably not what you expected.

S&P 400 Midcap index ticker code

The S&P 400 Midcap index has the ticker code MID.

S&P 400 Midcap ETF ticker codes

The most liquid S&P 400 Midcap ETF is IJH (managed by Invesco). It has been traded since the summer of 2000 and the average daily volume is close to 1 million. Another ETF that tracks the same index is SPMD.

There is also an ETF that tracks the S&P 400 Midcap equal weight index (EWMC). We have not backtested the performance of EWMC compared to IJH, but in a previous article we looked at the S&P 500 equal-weighted vs S&P 500 market-weighted performance:

The equal-weighted index has performed the market-weighted one for many decades, most likely due to the smallcap-effect. The effect might be the same in the Midcap index.

S&P 400 Midcap futures contracts

At the CME there are two S&P 400 Midcap futures contracts: the standard and the e-mini. The ticker code for the mini-contract is EMD.

S&P Midcap Trading Strategy

Let’s go on to backtest some specific trading strategies. Can we expect the midcap index to perform much the same as the S&P 500? Our original hypothesis is no. The reason is that the midcap segment tends to trend more than the large-cap segment.

S&P Midcap Trading Strategy no 1

We start by backtesting our ATR-strategy that we published to our subscribers to our monthly trading edges in August 2001. We label this strategy as a volatility strategy.

If we backtest the same trading strategy on IJH we get the following equity curve:

S&P midcap index strategy (backtest)
S&P midcap index strategy (backtest)

You don’t need to look at the strategy performance metrics to conclude that this is a poor strategy.

For comparison, this is how it looks at QQQ (Nasdaq 100):

S&P midcap strategy example
S&P midcap strategy example

The trading edge was originally made for QQQ and it’s easy to understand why. As we initially said at the beginning of this heading, you can’t expect to find trading strategies that work on all kinds of assets, not even within different sectors of the stock market. The reason is that stocks have different business models, different ownership, and are exposed to different outside factors.

S&P Midcap Trading Strategy no 2

Let’s move on to backtest midcap strategy number 2. This time we try an overnight trading strategy: the monthly trading edge of March 2022. We enter at the close and we sell the close 24 hours later (the next trading day).

S&P midcap trading strategy backtest
S&P midcap trading strategy backtest

There are 362 trades, the average gain per trade is 0.31%, CAGR is 5% despite being invested only 6% of the time, the win rate is 60%, and the profit factor is 1.63. The numbers are decent, but again, the strategy works better on SPY and QQQ than S&P midcap (IJH).

S&P Midcap Trading Strategy- ending remarks

We have been trading and backtesting for over 20 years, and we can safely say it’s more difficult to find good and uncorrelated trading strategies in the midcap sector than in the “overall” market (S&P 500 and Nasdaq 100). Thus, we have yet to have a tradeable S&P midcap trading strategy that offers good risk-adjusted return and at the same time is uncorrelated to our other strategies.

What moves the E-mini S&P MidCap 400 — What affects the E-mini S&P MidCap 400 the most?

Many factors can affect the E-mini S&P Midcap 400 futures, and these are some of them:

  • The movement of the component stocks: The S&P Midcap 400 index is a market-capitalization-weighted index, so the fluctuation of the index depends more on the movement of higher-cap stocks than on the lower-cap stocks.
  • Interest rate changes: Changes in interest rates can affect stock prices and move the S&P Midcap 400 futures.
  • Economic news: Macroeconomic news reports, such as GDP growth rates, manufacturing index, and so on, affect the movement of the S&P Midcap 400 futures.
  • Value of the U.S. dollars: Most times, the value of the S&P Midcap 400 index rises when the USD is depreciating and falls when the USD is appreciating.

How are E-mini S&P MidCap 400 futures traded?

The E-mini S&P Midcap 400 futures contracts are traded on the CME Group’s exchange and can be traded from anywhere in the world via the Globex electronic platform. The contract trades from Sundays to Fridays from 6:00 p.m. to 5:00 p.m. ET the next day, with a one-hour break at the end of each day.

The contracts come in quarterly cycles of Mar, Jun, Sep, and Dec, with contracts listed for five consecutive quarters. One contract unit is equivalent to the current value of the index multiplied by $100. The price quotation is in USD and cents per index point. The contract is financially settled, and trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month.

How do you start trading E-mini S&P MidCap 400 futures?

You need to register with a futures broker to be able to trade the E-mini S&P Midcap 400 contract. The broker must have access to the CME exchange where the contract is traded and would help to clear your trades on the exchange. After registering with a futures broker, you have to fund your account. Futures are leveraged instruments, so you don’t need to have the total worth of the contract to start trading it — a little above the required initial margin is all you need.

Another option is to trade the CFD that tracks the E-mini Russell 2000 Index futures, which is offered by some CFD brokers like IG. If you only want to speculate and think you can trust a CFD broker, CFDs that track the E-mini S&P Midcap 400 futures can be a good option. One good thing about CFDs is that they enable you to trade price fluctuations without having to worry about contract expiry.

What is the E-mini S&P MidCap 400 trading at?

As of December 1, 2022, the E-mini S&P Midcap 400 futures were trading at $2585.8. See the chart here on the CME platform chart. The chart was gotten from TradingView.

Since the price changes from time to time, what is quoted here may not be the price it is trading now you are reading this post. You can click on any of the links to get the real-time price on the CME platform or directly from TradingView.

What’s E-mini S&P MidCap 400 futures hour?

The E-mini S&P Midcap 400 futures trade on the CME Globex electronic platform from Sundays to Fridays, from 6:00 p.m. to 5:00 p.m. ET the next day. There is a one-hour break before the start of the next trading day (5:00 p.m. – 6:00 p.m. ET) from Monday to Thursday for maintenance.

The trading hours for BTIC is Sunday to Friday, from 6:00 p.m. to 4:00 p.m. ET, while the CME ClearPort schedule is Sunday – Friday, 6:00 pm – 5:15 pm ET the next day, with a 45–minute break each day beginning at 5:15 pm, Monday to Thursday.

Where can I find trading charts?

The chart is available on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, which provides free access to the charts of various instruments. However, to connect TradingView to your broker, you must subscribe to its Pro services. From the CME platform, you can also access the TradingView chart. Another place where you can find E-mini S&P Midcap 400 futures charts is Yahoo Finance. You can also subscribe to trading charts through a paid third-party platform like MultiCharts.

What are the trading symbols for E-mini S&P MidCap 400 futures?

The trading symbol for the full contract is EMD. The product codes for the different services are as follows:

  • CME Globex: EMD
  • CME ClearPort: ME
  • Clearing: ME
  • BTIC: EMT

What is the specification for E-mini S&P MidCap 400 futures contract?

One contract unit of the E-mini S&P Midcap 400 futures (EMD) is equivalent to the index’s value multiplied by $100. The price quotation is in U.S. dollars and cents per index point, and the minimum price fluctuation is 0.1 index point or $10 per contract.

There are quarterly contracts (Mar, Jun, Sep, and Dec) listed for 5 consecutive quarters. Contracts are financially settled, and trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month. BTIC trading terminates at 4:00 p.m. ET on the Thursday before the 3rd Friday of the contract month.

Why should you start trading E-mini S&P MidCap 400 futures?

You may want to trade E-mini S&P Midcap 400 futures contracts for many different reasons, such as the following:

  • You can use it to hedge your position in the equity market, which is what many institutional investors do
  • As an investor, you can use it to diversify your investment portfolio
  • As a trader, you can use it to speculate on the direction of the S&P Midcap 400 index and profit from short-term price changes — since futures allow you to trade on margin, you can potentially make more profits trading it than trading the ETFs on the equity market.

What is the contract size?

One contract unit of the E-mini S&P Midcap 400 futures is equivalent to $100 x the index’s value. The total dollar worth of a contract depends on the current quote of the index. Given the current quote of 2585.8, as of writing, the total USD worth of one contract unit of the E-mini S&P Midcap 400 futures (EMD) would be $100 x 2585.8 = $258,580.

What is the tick size?

The tick size of one contract of the E-mini S&P Midcap 400 futures is $10.00 for outright trading on Globex and $5.00 for BTIC and Calendar Spread.

What is the minimum price fluctuation for E-mini S&P MidCap 400 futures?

The minimum price fluctuation for E-mini S&P Midcap 400 futures is 0.10 index points for outright trading on Globex and 0.05 index points for BTIC, and Calendar Spread.

Are there any ETFs?

Yes, there are quite a few ETFs that track the S&P Midcap 400 index. These are some of them:

  • iShares Core S&P Mid-Cap ETF (IJH)
  • SPDR S&P Midcap 400 ETF Trust (MDY)
  • SPDR Portfolio S&P 400 Mid Cap ETF (SPMD)
  • Vanguard S&P Mid-Cap 400 ETF (IVOO)

What factors affect E-mini S&P MidCap 400 prices?

Some of the factors that can affect E-mini S&P Midcap 400 futures prices include:

  • The movement of the larger component stocks of the index
  • Macroeconomic reports, such as CPI, GDP growth rate, interest rates, etc
  • Interest rate changes
  • The state of the economy
  • Sociopolitical events
  • Natural disasters

What is the all-time high for E-mini S&P MidCap 400 futures?

According to the TradingView chart for E-mini S&P Midcap 400 futures, the all-time high is 2924.2, which it reached in November 2021.

What are the biggest risks in trading E-mini S&P MidCap 400 futures?

When trading any type of futures, the biggest risk comes from adverse price movement, especially given the fact that futures are leveraged instruments. The losses from adverse price moves are calculated using the actual value of the contract size traded rather than the margin deposited. So, if you trade with a 20x leverage, a 1% adverse move would lead to a 20% loss in your account, while a 5% negative movement would wipe out your account.

What is the settlement method?

Financially settled

What is the settlement procedure?

The settlement procedure is by cash and is calculated based on the special opening quotes of the index on the day of final settlement which is normally the third Friday of the contract month.

What is the block minimum for E-mini S&P MidCap 400 futures?

50 contracts for BTIC on E-mini Standard & Poor’s Midcap 400 Stock Price Index Futures

What is the difference between E-mini S&P MidCap 400 futures and the Forex instrument for E-mini S&P MidCap 400?

CFD trading differs from futures in that futures contracts have fixed expiration dates, while CFDs can be traded indefinitely. Most CFD brokers that offer E-mini S&P Midcap 400 CFD simply track the index and not the futures.

Which forex instrument is the same as E-mini S&P MidCap 400 futures

E-mini S&P MidCap 400 CFD

What are some important dates for this market?

These are a few of the important dates for the E-mini S&P Midcap 400 futures market:

  • 1991: the S&P Midcap 400 Index was created
  • 2002: the E-mini contract debuted on the CME platform
  • November 2021 when the e-mini futures market made its all-time high of 2924.2

What is the highest E-mini S&P MidCap 400 has ever been its all-time high?

According to the TradingView chart for E-mini S&P Midcap 400 index, the highest price the index has ever reached was 2925.93, which happened in November 2021.

What is the lowest E-mini S&P MidCap 400 has ever been its all-time low?

According to the TradingView chart for E-mini S&P Midcap 400 index, the lowest price the index has ever reached was 119.43, which happened in June 1991.

FAQ:

How is the S&P 400 Midcap index different from the S&P 500?

The S&P 400 Midcap index is a stock index that tracks the performance of mid-sized companies in the US stock market. While the S&P 500 represents larger companies, the S&P 400 Midcap index focuses on mid-sized companies. The S&P 400 reflects the risk and return characteristics specific to this market segment.

What are the criteria for a company to be added to the S&P 400 Midcap index?

To be included in the index, a company must be based in the United States, listed on a stock exchange, and possess a minimum investable factor of 0.10. The index is market-cap weighted, meaning companies with higher valuations have a larger impact.

Can you share examples of backtested S&P Midcap trading strategies and their performance metrics?

Certainly! Two examples of backtested S&P Midcap trading strategies were provided in this article. One focused on a volatility strategy with poor results, and the other was an overnight trading strategy with decent performance metrics. However, it’s noted that these strategies worked better on larger indices like SPY and QQQ.

How do I start trading E-mini S&P MidCap 400 futures?

To start trading, register with a futures broker, fund your account, and gain access to the CME Globex platform where the contract is traded. You can also explore trading the CFD offered by some brokers.

What factors affect E-mini S&P MidCap 400 prices?

Various factors impact E-mini S&P MidCap 400 futures, including the movement of component stocks, interest rate changes, economic news, and the value of the U.S. dollar.

What is the seasonality of E-mini S&P MidCap 400 futures?

Seasonality analysis suggests that the S&P MidCap 400 index tends to perform better in winter and spring months compared to summer and fall.

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