Hey, who wouldn't love to have a trading and investing crystal ball?
Something that could tell you the stock that's trading at $7.98 today will open higher or lower the next day, the next week, the next month.
I'm here to tell you that you can come pretty close to doing just that. It works for entire indexes, too. Anyone can see where the S&P 500 closed on any given Wednesday, but you can see how it's going to open the next day.
No need to keep a fortune-teller on the payroll, either. You can do it with free, public information.
I'm amazed more regular traders aren't looking at this. If they knew where to find this stuff and, more importantly, how to understand and use it to get in position to profit, I guarantee they'd use it.
Here's the "big secret"...
The Market Closes at 4:00, but It Never Really Sleeps
Over $20 trillion changes hands every year in the U.S. stock market alone.
That's more than $81 billion a day, 252 days a year. You don't really think it all stops at 4 p.m., do you?
Of course not.
That's why there's "after-hours trading." After-hours buying and selling takes place before the market opens ("pre-market") at 9 a.m. and after it closes at 4 p.m. ("after hours") through electronic networks, as opposed to traditional stock markets.
For everyone's protection, prices are quoted, and these transactions still have to follow stringent FINRA and SEC rules. But if they want, buyers and sellers can meet "virtually" for stock transactions. It's even more dog-eat-dog than normal hours; there's less liquidity, less volume, but more volatility during off hours.
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Lots of big retail brokerages, like Fidelity, TD Ameritrade, and others offer access to these electronic networks so regular investors can trade after hours. To be clear, I'm not recommending you do that, but if you do, bear in mind everything I said about volatility, liquidity, and low volume.
You don't have to have skin in that game, though, to take advantage of what I'm about to show you.
Savvy market-watchers can go to a site like CNN Money to keep tabs on after-hours activity and get a pretty good idea of how the market's going to open that day; sort of a top-level "view from 30,000 feet" sense of what's happening.
Futures contracts are even more useful for prices on indexes, asset classes, and even commodities, too.
A futures contract is a heckuvalot like the options we know and love.
We all know you can trade options on stocks and exchange-traded funds (ETFs), but with a futures contract, you can get into "exotic" stuff like gold or oil, say, or corn.
The contract is derivative, and a legally binding agreement to buy or sell a particular security, commodity, or asset at a predetermined price at a specific future date. When you're buying futures, you're obligating yourself to buy and receive; when you're selling, you're obliged to deliver at expiration.
Traders use futures to lock in what they think will be a good price for something they actually want to take delivery of. They're used to speculate, on the long or short side, on future price direction. And futures can be used as a hedge, too, if a trader is worried the price might move against them.
Here Are the Important Futures to Watch
These futures are traded almost constantly, all over the world. Globex trading is available 23 hours a day, six days a week.
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You can use a program like ThinkorSwim to track the futures tickers I'm going to rattle off in a second. You can even make all-in-one, at-a-glance charts there.
Here's what I like to look at every Sunday night and before every trading day...
- You can use ticker /ES to pull up the E-Mini S&P 500 futures contracts. Since these are traded on the CME's Globex network, traders all over the world can trade them. You can tell instantly how whatever market or sector you're into will likely open the next day.
- Typing /U.S. will show you U.S. Treasury bond futures. When you see Treasuries selling off, it's a pretty smart bet that securities that are inversely related could be heading up the next day.
- Inputing /CL will bring up crude oil futures. This pretty much speaks for itself. Crude futures are the key to knowing how to position yourself in crude ETFs like the United States Oil Fund LP (NYSEArca: USO) and oil stocks like ExxonMobil Corp. (NYSE: XOM). Back in April, when front month contracts plummeted into negative territory, millions of new mobile-app investors bought into USO because it looked cheap. If they'd checked the futures markets, they'd have saved themselves a world of trouble.
- Last, but definitely not least, is gold, or /GC. You can use the futures markets to pick great entry points to add to a gold position, sure, but you can also see how your miners, junior miners, and, to a lesser extent, royalty streamers are going to behave in the hours and days ahead.
But if for any reason a program like ThinkorSwim isn't your thing, no problem: You can just surf on over to the Chicago Mercantile Exchange at cmegroup.com. You don't even have to click anything if you don't want to!
The information you need isn't even halfway down the homepage.
(Bear in mind that on the CME, quotes are delayed by 10 minutes, but that shouldn't be a problem for regular folks.)
Check out this screenshot - this is only around half of what you can see there, too.
That's agriculture, energy, equities, foreign exchange (FX), interest rates, and metals.
Those are just the "Big Six." Poke around a little bit, and you can find coffee futures, cheese, wheat, lumber, live cattle - you can't find baseball cards or comics yet, but who knows?
The point is, if people trade it for money, there's a pretty good chance you'll find futures contracts for it on the Chicago Mercantile Exchange. Again, I'm not recommending you trade futures - if you do, make sure you talk to a financial advisor first - but I simply like using futures to predict where my stocks are headed.
The bottom line is there's no such thing as a market crystal ball. But if you're sophisticated and open-minded about where you're getting information from, you can absolutely get an edge over 99% of the other traders out there. And you don't have to pay a nickel for it if you don't want to.
Now Watch Our First-Ever Stock-Picking Lightning Round (and Be Sure to Take Notes)
My friend and colleague, Chief Investment Strategist Shah Gilani, recently sat down with his team to dish dirt on more than 50 stocks.
Now it's all on video - which stocks you should think about buying, and which you should run away from. Word to the wise, though: Write these down. They really do come fast and thick.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.