At Princeton, most forecasts conducted on futures markets are done on a “nearest futures basis” which means the most current contract month. For example, there are four contract months for the IMM currencies; March, June, September, and December. We base our forecasts on the nearest contract month until it actually expires. Since traders should usually select the most active month to trade, it is necessary to convert the numbers provided in the Princeton reports from the nearest to the most active month approximately 1 to 3 weeks prior to expiration (depending on the particular market).
To accomplish this, simply determine the differential between the closing prices of the nearest contract and the active contract. If the nearest contract price is higher, then the difference is subtracted from all numbers provided by Princeton’s analysis. Conversely, if the nearest futures contract is lower than the next contract month, the difference will be added.
However, in the case of the precious metals, (gold and silver), our forecasts are conducted on a perpetual spot market basis. While gold and silver trade on a spot market basis in Hong Kong, Zurich and London, the majority of trading in New York takes place on the COMEX futures contracts. Nevertheless, COMEX always offers a spot contract basis the current calendar month.
While our analysis and reversal system will ALWAYS be basis the current spot contract, traders should select the most active futures contract to actually buy and sell the precious metals (This is easily determined from the daily volume of each contract month). The spot numbers for our reversals as well as support and resistance can be converted for use into any futures contract by simply adding the difference between the previous close of spot and the desired futures contract. DO NOT use a spread quote from the trading floor for this will vary considerably during the course of the day. The spread based on the previous closing will offer a more stable conversion factor.
Conversion from “Spot” Contracts
To convert the “spot” prices in gold and silver to a futures contract, the following simple exercise should be done:
Step 1: Determine the “spread” based upon the prior closes between the futures contract you are following and the “spot” price (which is available from the COMEX or your quote vendor).
Step 2: Add this amount to all of the Princeton technical analysis numbers, Reversal System numbers, Indicating Range numbers, etc., to obtain a comparable value for the contract you are trading, for example:
Date: July 23, 1991
- Prior close of July Gold: 367.60
- Prior close of August Gold: 368.10
- Prior close of December Gold: 375.00
The difference or “spread” between “spot” (July) and August is .50 (368.10 – 367.60 =.50) while the spread between “spot” and December is 7.40 (375.00 – 367.60=7.40). On July 23, the Indicating Ranges for the following day are transmitted as the following:
- Momentum: 370.10 – 368.80
- Trend: 371.20 – 370.00
- Lt/trend: 370.30 – 368.80
In this instance, if you were trading the August contract add .50 to these numbers. If you were trading the December contract add 7.40 to the numbers. You may trade any contract you choose as long as you convert all of the Princeton numbers including Reversals, other system numbers and technical numbers to the desired trading contract.