The PREM in this discussion will refer to any of the following.
The symbols here are based on Tradestation.
The premium is the difference between the futures and the cash ratio. The calculations are basically @ SP.P – $ INX = SP Premium, $ NQIQX – $ IQX = Nasdaq Premium, $ ER2IUX – $ IUX = Russell Premium.
However, the actual calculation of the premium is a bit more complicated ._ The PREM is calculated step by step, every time there is an exchange for @ SP.P, TS uses this value of @ SP.P minus the previous value of the $ INX to calculate the tick of the $ spinx._ The same procedure is used with the $ INX._ The values for the minute bar are taken from the tick data generated for the $ spinx itself ._ Since not all shares on the $ INX open at the same time, the first few minutes of the $ INX will be inaccurate. Consequently, the PREM will also be inaccurate until all stocks have been opened. I adjust it using a custom session time that opens at 8:32. _Additionally, given that the futures close at 3:15 cst while the cash index closes at 3:00 cst. any PREM delivered after 3:00 cst is incorrect.
HOW TO READ THE PREM
Look at the right side of the bar. Use a 1 minute table. The maximum of the S&P 500 FUTURES (spoos) corresponds to the maximum of the prem. The bass of the spoos corresponds to the bass of the prem.
Rule # 2
As long as there is a new high for the day at the premiere, it means one of two things. Either the prize goes higher or the spoos go higher or both. When there is ever a new low in the prem, either the prem goes down or the spoos goes down or both.
This may seem ambiguous, but it is just a fact of observation. Consider these scenarios.
THE MARKET IS SHORT
The premiere reaches a new record. Read the rush of spoos. If spoos didn’t go higher before they continued short, a price point was created. When the fakes change, they are likely to rise again at the price associated with the last new high at the premiere and are likely to go higher.
The premiere reaches a new low. Read the bottom of the spoos. If spoos didn’t go down before they started to rally, a price point was created. If the spoos turn around and go up a bit, they are likely to short out again and return to the price associated with the last new premium low and probably go down.
Spoos hit a new low. The prem reaches a new high (rare). The liquidation is very likely over.
THE MARKET IS RECOVERING
The premiere reaches a new record. Read the rush of spoos. If spoos didn’t go higher before going backwards, a price point was created. When the fakes change, they are likely to rise again at the price associated with the last new high at the premiere and are likely to go higher.
The premiere reaches a new low. Read the bottom of the spoos. If spoos didn’t go down before they started to rally, a price point was created. If the spoos turn and rise further, they are likely to go short and return to the price associated with the last new premium low and likely go down.
Spoos hit a new record. The prem is a new (rare) bass. It is very likely that the rally is over.
Rule # 3
The new highs or lows in the spoos must be preceded by new highs or lows in the prem. If not, the market is about to change.
Reading the PREM is not a strategy in itself. It’s a leading indicator and can regularly predict where spoos will go before getting there, especially when spoos seem to be doing the opposite.
The new highs and lows on the premises are by themselves fairly decent indications that a large institutional program is underway, without necessarily knowing the predetermined levels of purchase and sale execution.
If the trading program is underway, it’s best to make sure you don’t trade in the opposite direction.
Our business strategy takes these and other factors into account, thus producing highly accurate and timely transactions. We invite you to consider our results and training course to help you become a more effective trader.