Markets That Dont Meet the Call

Astute traders often monitor markets that trade on overnight, after-hours electronic platforms such as the Chicago Mercantile Exchange's Globex or the New York Mercantile Exchange's Access system. What they're looking for are markets that make significant moves overnight but then don't see that same follow-through when the regular trading session reopens in the morning. For example, let's say that natural gas trades up 10 cents overnight on Access to a new 20-day high. However, when the market opens for floor trading at Nymex the next morning, it never meets this call and opens up only 6 cents higher. When markets don't meet their original call, it's usually an early-warning sign of trouble, and the market is likely to reverse course.

As a follow-up, assume for the moment that S&Ps on Globex closed at 9:15 EST 10 handles higher, which would bring the S&P into new nine-day high territory. But on the regular opening at 9:30 EST, they're only five to six handles higher and immediately begin to sell off. This is another case of a market not making the call. However, keep in mind that if, between the time that the overnight system ended (in this case 9:15 EST) and the day session began (9:30 EST), an economic report or some breaking news item was released this would obviously invalidate the scenario of a market not meeting its call.

I remember back in August 1991 when Gorbachev was placed under house arrest during the Russian coup. Brent crude oil in London traded up 4 on this news. However, when New York crude oil opened later that day, the market came in only 2 higher. Such a significant disparity between New York and London was an early-warning signal that something was just not right. At the end of the day, oil futures had traded all the way back down to unchanged.

Most of the time a trader discovers why the market never made its opening call only after the fact. Instead of worrying about specific particulars and why one thing may or may not have impact on the market, it's much easier just to react to the price action exhibited by that commodity or stock. If Company XYZ announces earnings that look spectacular, but instead of opening up $2 higher as indicated, the stock XYZ opens only $0.50 higher, sell it. Later on, let some analyst tell you that stock

XYZ's earnings were not as good as they looked. Or, if OPEC reaches a production-cut agreement and crude oil is supposed to open higher and instead comes in lower the next day, sell that too. Let some oil guru tell CNBC later on that two or three oil-producing nations were already cheating on the new quotas.

Was this article helpful?

0 0

Post a comment