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the front month, the difference between fair value and cash dwindles (due to convergence). Get close enough to the maturity date (within a week or less perhaps) and the fair value becomes marginally greater than cash. In this case, some may look at difference between S&P futures and cash rather than S&P futures and fair value. Regardless, the spread between the S&P futures and fair value is the correct way to assess the stock market direction at the open.

Nowadays Dow Jones and NASDAQ futures have joined the S&P futures as market open indicators. For example, a rise in NASDAQ futures may point to a general rise in technology stocks (as NASDAQ is rife with tech stocks) when the market opens. FYI, the after hours trading for NASDAQ futures takes place on GLOBEX as well, while Project A (the electronic trading system of CBOT) handles the afterhours trading for Dow Jones futures.

Phew. Now that I have you all confused, the good news: I didn't go through this elaborate description for nothing. You hear about S&P futures on every radio and TV financial program prior to the market open, and I wanted to give you some information on where it comes from and what it means. Keep in mind when the media talks about S&P futures being up or down, they usually are comparing the current value of S&P futures to the value it closed at the day before, unless the fair value is expressly mentioned. Don't lose any sleep over it. Generally a rise in S&P futures prior to the market open points to a higher market open,while a dip in S&P futures points to a lower open. It simply means that some traders must have believed that the market will go one way or another for that day and they acted according to their beliefs prior to the market open. It says nothing definite about the direction of the market during the day, but if the value is large enough, it may point to the mood of the market for that day. The S&P, NASDAQ, and Dow …