Paying Attention to the Pre-Market

We can all glean some good information by analyzing and interpreting action before the opening bell.  I look at many different items to determine how the day might go, to be ready for anything that is thrown at me.  Catching falling knives or buying extended markets is not my game, but if a trend is starting – even for the day – we can be quite profitable from it.

First, we need to see how the overseas markets performed and if that is spilling over to our markets.  If Germany’s DAX is down 1.7%, England is lower by 1.2%, China is off by 1.5% and Japan is down by 2.4% then it’s obvious a risk-off mode is happening.  If our futures market is lower as well after these markets fell then we can determine there is little bid (buyer presence) and that is one clue to stay out of the way. 

News before the opening bell is important.  Earnings are released after the prior day close and before the opening bell, this could help put a bid under the market.  Conversely, a bad number will cause buyers to back off and that is likely to have a negative effect all day long.  Economic data releases will often be a catalyst to how the market is trending, but that may have already been cemented prior.

Volume is always a consideration.  In a poorly-acting market we see extended days of selling and pressure on prices.  A market in distribution, as we currently are in may tip its hand with some very early volume pressure on price.  This is certainly good clue as to what the day may look like. 

Finally, sentiment tells us where the emotions lie.  When polls, put/call ratios, volatility and breadth close poorly the prior day it tells us there could be some spillover the next day.  Be aware and objective about analyzing this data and prepare for some followthrough.

Paying attention to the pre-market action can give you a nice script into how the day may unfold.