HOW TO READ THE S&P PREMIUM

RSKsys has studied the correlation between all 3 premium feeds and the corresponding movement of the spoos and offers these rules as a basis for reading the premium.

In general terms, any time a new high on any of the premium feeds takes place, it indicates either the spoos will go higher or the premium will go higher or both. Any time any one of the premium feeds hits a new low, the spoos will go lower or the premium will go lower or both. Note: the price associated with the new high or new low of the premium is the target. So if a new low on the premium hits and the spoos do not immediately go lower, it forecasts the subsequently rally should be shorted. Conversely, if new highs on the premium are not immediately followed by new highs on the spoos, the subsequent sell off should be a basis for a long trade. This rule bridges the close of the market and can serve as a basis for trading the following morning. Finally, if new highs on the premium take place simultaneously with new lows on the spoos, almost invariably the sell off is immediately over and the market will begin to rally. Likewise, if new lows on the premium take place simultaneously with new highs on the spoos, short the market immediately as the rally is invariably over.

Symbols here are based on Tradestation. The Premium is basically the difference between the futures and the cash index.

@SP.P - $INX = SP Premium
$NQIQX - $IQX = Nasdaq Premium
$ESINX - $INX = Emini SP Premium

However, the actual calculation of the premium is a bit more involved. The PREM is calculated tick by tick, every time that there is a trade 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 stocks in 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 opened. I adjust for this by using a custom session time that opens at 8:32. Additionally, since the futures close at 3:15 cst while the cash index closes at 3:00 cst. any PREM delivered after 3:00 cst is wrong.

HOW TO READ THE PREM

Rule # 1:
Look at the correct part of the bar. Use a 1 minute chart. The high of the S&P 500 FUTURES (spoos) corresponds to the high of the prem. The low of the spoos corresponds to the low of the prem.

Rule #2:
When ever there is a new high for the day on the prem, it means one of two things. Either the prem is going higher or the spoos are going higher or both. When ever there is a new low on the prem, either the prem is going lower or the spoos are going lower or both.

This may seem ambiguous, but its just a fact of observation. Consider these scenarios:

The prem hits a new high. Read the high of the spoos. If the spoos did not go any higher before they continued to short, a price point was created. When the spoos turn up, they will likely rally right back to the price associated with the last new high on the prem and likely go higher.
The prem hits a new low. Read the low of the spoos. If the spoos went no lower before they began to rally, a price point was created. If the spoos turn and rally up a bit, likely they will short again and return right back to the price associated with the last new low on the prem and probably go lower.
The spoos hit a new low. The prem hits a new high (rare). The sell off is very likely over.
The spoos hit a new high. The prem hits a new low (rare). The rally will likely stop like it hit a brick wall, reverse and begin to short.

Rule #3:
New highs or lows on the spoos should be preceded by new highs or lows on the prem. If they are not, the market is poised to turn.

Reading the PREM is not a strategy per se. It is a leading indicator and can regularly predict where the spoos are going to go before they get there, especially when the spoos appear to be doing just the opposite. New highs and lows on the prem are by themselves fairly decent indications of large institutional program trading going on, without necessarily knowing predetermined buy sell execution levels. If the program trading is going on you best be sure not to trade in the opposition direction. Our trading strategy takes these and other factors in to account thus producing very accurate and timely trades. We invite you to consider our results and training course to help you become a more effective trader.

ES Prem magenta bar forcasts new highs on the spoos 40 minutes in advance. Trader knows to look for a rally to go long on the pull back

Sp prem blue bar forcasts new lows on the spoos hours before it occurs. New highs on all 3 premium feeds indicates spoos will go higher which they do, followed by a short in to the low of the day which was predicted by the premium in the morning.

New lows on all 3 premium feeds on 12/22 indicates spoos will sell off on any rally on 12/23. After nasdaq and es prem hit new highs on 12/23, our traders knew to short the market to at least the target price associated with the low of the es at the time of the prem hit new lows on 12/22. See red line for target price.

Huge spike on sp prem after 12:00 on 11/20 indicates spoos will go higher. Even though the market continued to sell off, the premium forecasts a rally which begins mid morning on 11/21 and lasts in to 11/24.

New low on sp prem indicates spoos will go lower. The trader now has a basis to short the following rally with a price target that will be less than or equal to 926.25 which was the low when the sp prem hit a new low for the day. The trader also knew that a short would likely materialize after the spoos went slightly higher than they did when the nasdaq and es prem hit a new high just before 1pm.

When searching for the low of the morning es prem hits a new low at 9am. The trader now knows the spoos will drop lower which they do just before 9:20. Moments later the es prem hits a new high confirming the long trade which lasts the whole day.

New lows on nasdaq and es prem late on 11/24 forcasts a sell off for the following day. Our traders new to short the morning rally and hold the trade until the spoos drop to less than or equal to the price at the time the prem hit the low the on 11/24. That trade was worth well over 20 points

New lows on the premium indicate a short will develop returning the spoos to less than or equal to the low at 9:11 cst. That means a Protrader short set up with a target of at least 1111.25. A potential 4 point move off the high. Notice how we trade this.

Reading the Premium with a simple moving average using tick charts. When to enter the trade!

HOW TO READ THE PREM: MORE DETAILS

PREM is a leading indicator. Read it just the opposite of what you would do with the spoos!

LONG TRADES

Are the spoos at a relative low? Is the premium MA greater than FV? Good! Is the premium Stoch over bought? Better

SHORT TRADES

Are the spoos at a relative high? Is the premium MA less than FV? Good! Is the premium Stoch over sold? Better