Low water, also known as discounted price, means that the price of futures is lower than the spot price.
Take HSI futures as an example, if the HSI is higher than the futures index, it is called low water or discounted futures index. It should be noted that the futures index is a special product whose price is determined now and will be settled at the end of each month when the contract expires. On the settlement day, the futures price should be equal to the spot price, i.e. the futures index should be equal to the HSI.
Therefore, the spot price of the futures index is an estimate of the closing price of the HSI on the future expiry date. If the futures price is low, it means that investors expect the HSI will fall in the future and the market will become weak.
High water, also known as rising water, usually refers to the fact that the price of futures is higher than the spot price.
For example, if the futures index (i.e. HSI futures) is higher than the HSI (i.e. Hang Seng Index), it is called high water in the futures index.
A high price of a futures index is generally regarded as an indicator of a positive market trend because investors in the futures market are willing to buy the index at a higher price than the spot market, which indicates investors' confidence in the market.