Any charts, such as weekly or monthly, which do not have the same contract for every time period, run into the problem of continuity. In futures, the most active contract month is the one in which the greatest volume of trading occurs. However, the most actively traded contract constantly changes from one contract month to another, depending on the time. The different contract months often have different prices, so when the contract month changes or expires there is a problem in deciding how to continue the price activity.

On February 22, the March 91 S&P500 future closed near 366.50, while the June 91 S&P500 future closed higher at 370.00. The continuous weekly or monthly futures chart uses the most recent futures contract. The near term (March) is priced lower than the farther out month (June), so how should the  chart be continued when the March contract stops trading and June becomes the active month? If we want to make a continuous ,daily chart of the futures, how should this price discrepancy be reconciled?

The problem becomes more apparent in commodities where the front months may not be related to the pricing in the back months, such as the meats or grains. August 90 pork bellies closed near the 44 level on July 20. The next trading month after August is the February 91 contract which closed at 52 on July 20. The February contract closed approximately 8 cents higher than the August contract. Furthermore, the February contract declined nearly 14 cents from the June highs to the July lows, whereas the August contract dropped over 25 cents in the same period.

Imbalances in the supply and demand for a commodity can cause one contract month to change differently than another contract month during the same time of the year. The supply and demand fundamentals for February pork bellies may be quite different than for the August contract, which can cause pricing discrepancies. Markets may become inverted where the near-term future is priced higher than the back months. This occurred in the pork belly market during June, when the August contract was trading above the February contract. Note, on June 11 the August contract closed above 67, but the February contract closed near 63. The August contract subsequently dropped below the price of the February contract. Normal markets occur when the short-term future is cheaper than the long-term months, such as the example in the S&P500 futures.

Each charting service has its own way of dealing with the dilemma. Some simply wait till the lead month expires and use the next one, ignoring the price gap. Others average the contracts together to get a continuous or perpetual contract. There are other methods to deal with the problem, but there is no right answer. Each way leads to a series of compromises, but the problem should not be too severe unless the trader intends to study precise long-term patterns.