(November 2 ) – “Every morning, before Wall Street awakens, millions of investors think they are looking at the future. Turns out, they’re often just misreading the present,” writes Jeff Opdyke in today’s Wall Street Journal.

“The focus of attention for many early-rising investors is the futures-market movement for the Dow Jones Industrial Average, the Standard & Poor’s 500 stock index and the Nasdaq Composite Index. For investors struggling to divine Wall Street’s course, the oscillations of these futures prices — beamed into their homes via cable-TV and radio business-news reports — serve as a signpost.”

“Rick LaPoint, for one, sure likes to think so. The 45-year-old day trader in Anaheim Hills, Calif., slips out of bed at 5:30 a.m., an hour before the market opens on the West Coast, to check the futures. He checks again 30 minutes and 15 minutes before Wall Street is unleashed, trying to gauge, he says, ‘which way [the markets] are going to gap.’ “

“If only it were that easy.”

“In reality, the futures number ‘is not a very good indicator of where the market is headed,’ says David Blitzer, chairman of Standard & Poor’s index committee. Nasdaq officials determined that Nasdaq futures were off course so often that they have created a new early-morning indicator. But more on that in a moment.”

“Clearly, Mr. Blitzer says, many investors “are using the futures price as something more than it is.” Just because futures shed a bunch of points before the open doesn’t mean the market is headed south. In fact, it doesn’t even mean the market will open in that direction.”

” ‘But no one,’ Mr. Blitzer says, ‘seems to understand what this thing does.’ “

“And what does it do? Basically the same thing a stock price does: It establishes, at a given moment, what investors are paying to own an asset — in this case the so-called nearby contract (the contract with the closest expiration date, currently December) on the S&P 500, Dow industrials or Nasdaq composite.”

“Beyond that, ‘there’s not a lot else [the number] shows,’ says Mr. Blitzer, who, like many, sees the numbers each morning on TV. The set in the lobby of his office ‘is always tuned to CNBC, and I glance at the futures. But it doesn’t tell much about what’s going to happen for the day.’

“The futures prices the cable networks flash in a little box in the lower-right corner of the screen are based on overnight and overseas trading of S&P, Dow industrials and Nasdaq futures. That trading turns on a host of variables: news that breaks after U.S. markets close, investor guesses at the next day’s U.S. trading based on foreign market activity, and the movement of the large U.S. stocks trading in Tokyo, Frankfurt and London in the hours before the sun rises on Wall Street.”

“At 9:30 a.m., when the opening bell rings at the New York Stock Exchange, the futures-price information becomes moot, taken over by the cash market — live trading in the S&P, Dow Jones industrials and Nasdaq stocks. And events often removed from overnight and overseas concerns determine market direction.”