Pre Market Research: A How to Guide

Pre Market Research: A How to Guide

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Many of you have asked how I produced the Pre-Market Briefs on Reddit. It is much easier than you think. Particularly if you are only interested in news that broke in the non-trading hours of 8:00 PM to 04:00 AM. Here it is as promised! 

1. Stock Futures
2. Economic Calendar
3. Earnings Schedule
4. Researching Daily News
5. Conclusion

1) Stock Futures: For the "stock futures" I simply consult CNN pre-market trading. The aggregate stock futures for the Dow Jones, NASDAQ, and S&P can be found there. While this seems simple enough there are many who do not know what stock futures are. They ARE NOT stocks in the traditional sense, but futures contracts. They trade much different hours than stock and even during the weekend. They have vast implications as to the general state of the market the following trading day. See the specifics below.

  • Dow Futures: Dow Futures is a stock market index futures contract traded on the Chicago Mercantile Exchange`s Globex electronic trading platform. Dow Futures is based off the Dow 30 stock index. The Dow 30 is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. There are three types of Dow futures, the E-mini Dow, DJIA and Big Dow DJIA. The E-mini is the most popular. 
  • Nasdaq 100 Futures: Nasdaq 100 Futures is a stock market index futures contract traded on the Chicago Mercantile Exchange`s Globex electronic trading platform. Nasdaq 100 Futures is based off the Nasdaq 100 stock index. The Nasdaq 100 includes the shares of the 100 largest American and international companies as measured by their market capitalization which do not come from the financial sector. E-mini Nasdaq futures trade nearly 24 hours per day on the Globex trading system, from 4:30 PM US EST through until 4:15 PM US EST the next day. 
  • S&P 500 Futures: S&P 500 Futures, also known as E-mini, is a stock market index futures contract traded on the Chicago Mercantile Exchange`s Globex electronic trading platform. S&P 500 Futures is based off the S&P 500 stock index. The value of one contract is 50 times as much as the value of the S&P 500 stock index. E-mini S&P 500 futures contracts are traded in .25 increments and the full-sized S&P 500 contracts in .10 increments. 
Something else you may want to do is see how other stock exchanges around the world are trading. Sometimes they follow our (The United States) lead and sometimes they lead us. Either way inferences can be drawn as to how we will trade the upcoming trading day. We are fortunate that Asia and Europe trades before we do. We are also fortunate that many of the same companies traded in the United States have securities that are traded in Asian and European markets! How nice is that? There are a number of resources you can use but I simply go to CNN's World Market Data.

Of course, there are many many other futures resources you may want to use HERE.

2) Economic Calendar: For the Economic Calendar I reference TradingEconomics. This is where you see all of the upcoming economic data that will be released throughout the upcoming day/week. Data can be reported weekly, monthly, quarterly, or annually. The Data will include the previous weeks/months/quarter's results, a consensus estimate, and a foretasted estimate. Looking at these estimates before the day of trading can be problematic. The numbers are frequently being revised as analysts adjust their estimates. 

All of this data is important to traders of various instruments for many reasons. But some of the most important data sets to pay attention to as of the posting of this guide in the age of COVID-19 are unemployment (jobless claims) and GDP. The release of these numbers WILL CERTAINLY affect trading the day they are released. Other data sets you will want to keep an eye out for are manufacturing, housing, construction, personal income, auto sales, retail sales (Redbook), exports, imports, oil rig count, and more. If you are invested in home improvement, for example, construction, mortgage applications, and housing starts will be important to you. If you are invested in automotive manufacturing, auto sales will be important to you. If you are invested in retailers, Redbook will be important to you. You get the point. However if you are investing in anything, unemployment and GDP will matter to you. Nevertheless the big takeaway is that knowing the important upcoming economic data of the day will help you both prepare your daily trading strategy, and attain the proper mindset. Its good to know and plan for what may happen, good or bad. 

"TradingEconomics" is my preferred economic data site, but for others please see number 2 HERE

3) Earnings Schedule: There are a number of places you can go to review earnings calendars and they are listed under number 4 HERE. I do not recommend any one earnings calendar because I have experienced inaccuracies in all of them. It's best to cross reference them for accuracy. Just like the economic calendar, the earnings schedule is important to review at the start of your trading day. No, I'm not asking you to play earnings. I'm asking you to know what earnings are being announced. So why should you know what earnings are being announced? Please see the following example.

If Target (TGT) is reporting earnings you may want to know it. Everyone will be paying attention to Target. TGT may or may not report good earnings. However if TGT smashes earnings, or seriously under-performs, how do you think Walmart (who usually reports after TGT) will trade? You will not likely want to play TGT earnings because doing so is always risky. However you may be holding shares of another company in the same sector, or better yet, you can play TGT's earnings though WMT. While the dumb money is looking at the big flashy object or chasing TGT news, the smart money will be assessing what that news means, and come to the justifiable conclusion that TGT's earnings have very real implications as to how their number one competitor, WMT, will perform. The same can be said for Coke and Pepsi, Intel and AMD, Ford and GM, or Activision and Electronic Arts. The list is a large one! Moreover when well known large companies report earnings, conclusions will be drawn as to the performance of the sector as a whole. 

4) Researching Daily News: OK fellas, you likely skipped to this part. Go back up and read the above first please, its important! ..... OK now on to researching news ..... wait no! I'm serious! ..... Read it! ...... Now that you've read the information above that will prep you for your trading day, lets get on to researching daily news. 

There are a number of resources you can use to be alerted to the major news that hit while your were sleeping. My personal favorite resource is Newsfilter. Newsfilter has both a StockTwits feed and a Twitter Feed. They also provide an online service where you can subscribe to alerts concerning your favorite tickers. However, I am content with the free feeds. Not only can I program StockTwits or Twitter to alert me when Newsfilter posts (If I want my phone to explode), but I can go to their StockTwits feed and scroll down to see the breaking news they posted from latest to earliest. Test it out for yourself. You don't even need a StockTwits account to do it. However there is a problem. When you click on the news you will notice that it takes you to their web-page and requires you to sign up to see the information. You do not need to sign up if you don't want to. The news they provide is open source information available to the public. As such you can simply copy the headline and paste it on your favorite search engine and the story will appear before your eyes. If it does not you can likely find the information on a company filing in EDGAR. Umm... that's it ... Simple huh?

There are a few things you may want to keep in mind. ALWAYS check the time stamp on the original source! Additionally, if you trade on overnight information you may want to see if it wasn't posted first on another source at an earlier time. You wouldn't want to assume that what you perceive as overnight news was not reported during after hours trading or during the trading day.  

Other things you will want to know likely include the substance of the news. I see many confused traders who do not know how to process some of the news. The most common mistakes are the following:

  • Remember that the pricing of senior secured notes often means bonds, not a stock offering. 
  • Know that company officers "acquiring" securities means they are likely getting awarded or compensated stock, not buying it. The word you want to see is "purchase," or "buy," or a variant thereof. That's code (P) on the SEC Form 4 for those of you who don't know. So when you see 8 company insiders "acquiring" securities it usually means that they are awarded stock.
  • Just because some company insiders sell their securities does not mean that they lack confidence in the company they run. They could be selling for any number of reasons to include but not limited to taxes, investment into another aspect of the company, or to pay for their next vacation. 

5) Conclusion: This is what I do to prep for trading before the market opens. You may have another method, there are likely better ways, and this may not work for you. But this is how I do it. Reading the stock futures, reviewing the economic calendar, knowing what major companies are reporting earnings, and reviewing the news, will both make you a better trader and keep you better informed than your retail counterparts. It does not take a lot of time and you wont regret doing it. Finally, to be the first to trade on overnight, or very early pre-market news, or to take advantage of late after hours trading news, it is best to have a broker that begins trading at 4:00 AM eastern and ends trading at 8:00 PM eastern. Two brokers that come to mind are Webull (For traders in the United States) and Interactive Brokers (For those of you outside the U.S.). I am unaware of any others at this time. 

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IMPORTANT DISCLAIMER: I am NOT a registered investment adviser, broker dealer, or member of any other association for research providers in any jurisdiction whatsoever and I am NOT qualified to give financial advice. Investing/Trading in securities, particularly microcap securities, is highly speculative and carries and extremely high degree of risk. The information, analysis, and opinions listed above are my own and may not properly reflect the underlying conditions of a company or security. You should do your own Due Diligence. If you trade based on anything I have written YOU ACCEPT FULL RESPONSIBILITY AND LIABILITY for your own trades and actions and hold the author of this publication harmless. If that isn't clear enough DO NOT TRADE, ACT, OR INVEST, BASED UPON ANYTHING I WRITE OR RECOMMEND. There, we should be solid now. 

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