Pre-market analysis is analogous to what you would instinctively do when planning to cross the street.  To safely cross the street, you would consider the width of the street/highway, traffic volume and speed, traffic signals, marked pedestrian crosswalks and signs, time of day, weather conditions, etc.  Taking all these factors into consideration and looking both ways before proceeding, you would decide if it was safe to cross.  If you determined that it was unsafe at that moment, you would continue to monitor all the information until you determined that it is in fact safe to cross.  We know that being oblivious to crossing a multi-lane highway at peak traffic without paying attention to traffic/pedestrian signals can be a deadly exercise.  Similarly, being oblivious to the trading environment can have a negative effect on your trading account even with very favorable fundamental and technical analysis.  Remember mom and dad’s timeless wisdom.   “Always look both ways before you cross the street”

Below is a pre-market routine designed to gather information before engaging the market.  While not exhaustive, use as a template to understand the market environment prior to engaging.  Over time you will be able to quickly assess the market environment, and adjust your plans accordingly.  To have the greatest impact, you must do the analysis consistently.  Being inconsistent is like crossing the street frequently, but only occasionally looking both ways.  Diligent pre-market analysis will help you engage the market in a more favorable trading environment, and allows you to know when to take your hands off the mouse and keyboard.

www.finance.yahoo.com

www.smartmoney.com

How does it make you feel – optimistic v. pessimistic?  “Good news” can be bad, and “bad news” can be good.

News

Economic Calendar

www.briefing.com

Calendars

Economic Calendars

9522

4861

612

01212019

Note relative importance of each report; scale A – F

Compare consensus to actual.  Depending on relative importance and variance between consensus and actual, an economic report could have significant impact on pre-market futures and market open.

Some upcoming news events can have a multi-day impact on the market.  Grade upcoming news items anticipating their impact as we approach the event.  Example:  Upcoming FOMC meetings are closely watched.  Trade cautiously (position size, tighten stops, etc.) several days before/during the meeting, until the end of meeting announcements are made.

Extended Trading

PMI

$QMI.X on TradeStation

YM – Dow 30 Futures

NQ – Nasdaq 100

TF – Russell 2000

S&P is the bell weather (Mom and Dad)

Dow is like a small child and follows Mom and Dad closely

NASDAQ is like an older sibling running back and forth

Russell is like a disruptive middle child and is more active during the spring and summer

NASDAQ and Russell sometimes compete for lead.

Are the overall patterns very similar?

Is movement above/below the 8 MA coordinated?

If not, markets are not in sync.  Wait for harmony.

Markets

Bonds

When both bonds and S&P futures are concurrently up or down, something is wrong.  Do not engage market until one is up while the other is down.

When today’s open is within previous day’s trading range, it is an inside day.

Inside days are generally choppy, and designed to take your money.

Wait until today’s price action breaks outside (above or below) of previous day’s trading range before engaging the market

Net the +/- $.94 counts, and multiply the result by 20 resulting in the pre-market change (overnight change) from the prior day’s close.

Determine DOW fair value by subtracting the absolute value (drop the sign) of the DOW 30 cash from the futures value.  The result of this calculation is where the market should go immediately at the open.

Can also be viewed as an oscillator

Overbought = Futures greater than cash

Neutral = Futures and cash equal

Oversold = Futures less than cash

Overbought/sold = +/- 80

Extreme overbought/sold = +/- 140

Use as a real-time indicator throughout the trading session.

Take snapshots at 8:30a, 9:00a, 9:30a.

Average each snapshot over 60 to 90 days.

Note significant volume change between current day pre-market snapshots, i.e. 8:30a, 9:00a, and 9:30a.  A significant late volume surge leading into the open today can signal an event.  Investigate volume spike.

Note significant change between average pre-market volume over the past 60 to 90 days vs. today’s pre-market volume.  Investigate volume spike.

Watch movement in pre-market

Use as indicator during market session.

When moving in sync, they signal the direction of the market.  When not synchronized, watch until they move in tandem, then engage the market.

When in the pre-market both IBM and GS are $1.00 or more compared to the last trading sessions close, the market has a positive bias

When in the pre-market both IBM and GS are minus $1.00 or less compared to the last trading sessions close, the market has a negative bias

When in the pre-market both IBM and GS are less than plus or minus $1.00 compared to the last trading sessions close, the market will likely have a quiet open.

When one but not the other is +/- $1.00, be aware but this is a non-signal (IBM and GS are out of sync).

Open market direction

When IBM and GS are moving in tandem, market generally follows.

When they are out of sync, watch until they resynchronize.

Gaps tend to fill as follows:

1 – 3 points, fill within 1st 30 minutes

3 – 7 points, fill within 1st 1.5 hours

7 – 12 points, fill in last ½ hour of trading day

13+ points = gap and run.  Gap may take several days to fill

Measure opening gaps (number of points)

Measure time required to fill the gap

Track in spreadsheet and find averages based on point move and time

If TRIN closes + 2.00 or greater (oversold), Dow is likely to open plus 40 to 60 points

If TRIN closes + .60 or less (overbought), Dow is likely to open minus 40 to 60 points

Measure TRIN level and opening point move at session open

If YM = d, market is neutral

If YM < d, market is oversold

Note: +/- 80 = Overbought/oversold

+/- 140 = Extreme overbought/oversold