Trade Aptitude

Results of Friday’s Best S&P Futures Turning Points: Buying 4572.50 was filtered out during the Employment Report @ 8:30. 

Today’s Best S&P Futures Turning Points (consider wider stops and less size in fast moving markets): 

The volume levels are affected by rollover today and are filtered out. 

The World Index: (+100/-100) gains from +7 to +14 in a world of mixed sentiment. 

Catalysts: 10-year bond auction @ 13:01. 

Quick Tip: Futures Rollover

Futures contracts are buy/sell agreements between two parties. Every contract has a delivery date at which point the transaction ends and goods/money are exchanged. 

Many futures traders have no intention of fulfilling their contractual obligations. They’re either speculating on price direction or hedging against price changes. For these traders exiting the current contract before the delivery date and entering the next contract further out on the calendar is called rollover. 

The price difference can be an issue for some trading strategies. For example, the S&P futures closed on Friday at 4607.25 and the contract that is tradable going forward opened Sunday night at 4660.75. That’s a huge difference that will affect many technical indicators and strategies that depend on past price levels. 

Why the big gap up? There are several factors that determine the price but the biggest one now is the current interest rate. There is a cost of financing or carrying the underlying asset until the new contract expiration date included in the pricing calculation. With interest rates high, that cost affects the next contract price. A couple of years ago with interest rates near zero rollover wasn’t as dramatic. 

If you’re using technical indicators that have a lookback period, like ATR, RSI, etc., make sure there are enough candles/bars on your chart for the new contract. You don’t want the indicator to be influenced by the gap in price. 

If you’re using price levels the transition gets a little trickier. The price that was supply, demand, or high volume may not be as effective going forward. Documenting your trade results during prior rollover periods will give you some answers. 

Our team day-trades multiple strategies with edge in a live online environment. The research on our “edge” is updated and analyzed weekly. Join the team, learn the strategies, and trade live with us daily for 30 days. New lower rate available now. Money back if you’re not blown away!

Trade Fearlessly,

Mike Siewruk

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