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My Pre-Market Process for Energy Trading

I’ve been updating my pre-market routine this week after returning from the trip and figured I’d share. It gives a fairly comprehensive view of everything I’m using to formulate my trades for the day. While this seems like a long list or process, it really isn’t. Most of the items only take a minute or two to cover and the more you work with them the easier they get to manage. The key here is to avoid getting bogged down in the details. Have you ever seen one of those artists who takes scrap clippings and arranges them into a collage portrait? The individual scraps really have no detail, but the larger picture that emerges when all those scraps are combined is very detailed and useful. That’s how I’d describe this pre-market routine. None of the individual pieces are overly important, but taken as a group they paint a useful picture. I do the following steps in the order they are listed:


Overnight Equity Markets – I use a 24 hour SPY, QQQ and IWM chart to examine the overnight price action. I just want to know the high and low and the general direction of the action, as well as the total change from the prior day’s 4pm EST close. If you don’t have a real time futures feed, you can set up a free portfolio on Delayed quotes are fine, all you are really looking for here is the general overnight action. In addition, I’ll check foreign markets including CAC, FTSE, DAX, NIKKEI, SHANGHAI and also many of the smaller ones. You can get a really quick overall picture of these markets at (all links open in separate tabs). Again, don’t get too caught up in details here, just get a feel for whether stocks are negative or positive as trading swings back to the US markets.


Prior Day Equities Review – I use two things here, the market internals and the SPY sector map. You can find a good internals review here: The SPY sector map is found here: I use Google Chrome as my browser and it’s easy to set up an ordered list of all these websites for the routine. You can put them in any order you find useful, I’m just giving the order that works for me. I’m looking to see if the underlying numbers match up with the headline moves in the markets. For example, if the NYSE internals don’t align with and support the prior day’s SPY move, that’s a warning.


Today’s Important Economic Events – I’m looking for events that I want to avoid or trade off of. I use the ForexFactory Calendar which can be found here: I never want to be caught in a trade when some important economic number gets released. Do what you can to at least avoid the landmines that are pre-announced. I also look through general news articles for other things that might not be on the ForexFactory calendar. I want to include anything that can hurt me or potentially offer me a good trade opportunity. Don’t dig too deep on these, just hit the highlights.


Today’s Earnings Reports – I’m mostly looking for energy names on this list, but I’ll also pay attention to some of the megacap names like AAPL, TSLA or anything that could move the larger market or change the tone of trading sentiment for the day. When I find energy names on the list, I’ll spend a couple minutes researching for the whisper numbers on earnings and what the market is expecting. The actual earnings numbers are often misleading, the important thing is how they match up with what the market expects. Many times great earnings are met with a stock decline because the market was actually expecting more. Many sites have this information, but I find BarChart the most useful. You can find it here:


Today’s Upgrades and Downgrades – Again, I’m looking for individual energy names, but I’m also paying attention to the megacap names that can move the overall market. I don’t put too much faith in these analyst actions, but I do want to know what everyone else is trading off of and how the analysts might be trying to persuade the public with these upgrades or downgrades. I like MarketWatch for this information, you can find it here:


Macro Market Big Picture and Correlations Review – I’m a huge fan of John Murphy and his Intermarket Technical Analysis books. I’ve used this method for over 20 years and I really don’t know how anyone trades without it. It’s a way to get a big picture view of the market, as well as measure the relative strength/weakness of each of the pieces. In trading, you have to align yourself with the larger market and I’ve found this to be the best method. The basic pieces of the puzzle are Equities, Bonds, Commodities and Currencies. You want to measure how these pieces are working in relation to each other. Which are strong, which are weak. Are they all moving in their normal relationships, if not then what is causing that dislocation? To do this I use SPY, QQQ and IWM for equities, as well as the major sector ETFs like XLF, XBI, etc. I use TLT, 2/10/30 year rates, and curve steepness for Bonds. I use GLD, XME, USO, XLB and some of the agricultural names for Commodities. I use UUP, DXY for the overall dollar and CAD, AUD for commodity currencies. BarChart offers a great service for free that let’s you build a portfolio of these items. It’s delayed quotes, but that’s fine for what we are trying to do here. All we want is a general picture, not details. For more details on how this process works, give the Murphy books a look.


Sentiment Backdrop – This one is a bit subjective. What I’m doing here is trying to figure out the sentiment of the overall market and whether the day is likely to be risk on or risk off. To do this, I scan the front pages of sites like the Wall Street Journal, Bloomberg, CNBC, etc. and try to pick out 5-6 of the major news stories of the day and how that affects sentiment. For example, the Pelosi trip to Taiwan, Ukraine info, Inflation info, etc. I’m basically just trying to get a feel for the mood of traders and whether they are going to be active today, and which way that activity is likely to go. It’s a very vague process and mostly just an attempt to match the sentiment to the other items I listed above. I want all of them to align in the same direction.


Energy Prices – Ok, so now we have created a top down, larger picture view with the above items and now it’s time to narrow the focus to energy. First stop, review the overnight price action for WTI, Brent, NatGas, Gasoline and Diesel. How much have they changed from yesterday’s 4pm EST close? You can find these in many places. Again, I like the BarChart futures numbers since this is just a general view of direction and amount of price change. You can also use spot prices if you want more detail.


Intermarket Correlation Review (Oil versus Macro Picture) – Once I have the energy prices, the next step is to compare those energy prices to the other parts of the Intermarket Macro big picture from above. The dollar, rates and equities have a big effect on energy prices (and other commodities). Are energy prices moving in relation to these larger market pieces like they normally do? If not, something is wrong. Are other commodities moving up while oil is moving down? How is the gold/oil correlation? Are energy prices and the dollar holding their normal relationship? How is USO moving in relation to SPY? There are so many clues out there if you just compare relationships and determine relative strength and weakness of each of the pieces. I see so many people who get tunnel vision and only focus on energy. They attempt to operate on the micro level without giving the macro level any thought at all, which is just crazy to me. You need the wind to your back. Align your energy trading with the larger market.


Oil versus Oil Equities Review – After reviewing whether the strength/weakness in energy prices is consistent with the larger market action, the next step is to narrow even further to the relationship between energy prices and energy equities. Are USO and XLE (or XOP if you use that one) moving together? If not, that’s a significant clue that something is wrong and it’s probably a good idea to start digging to figure out why. Are UNG and NatGas names moving together? Next step is to check BP and SHEL. Those two stocks, which have been trading for a few hours ahead of the US markets, offer the first real clue of how things could go for US names during the upcoming day. Are they moving with or against USO? If they are significantly green, it’s likely going to be a green day for US names. Compare those two names to XLE (and XOM, CVX) and see if they are trading together. The majors rarely diverge from each other. If not, research why and then monitor the pre-market action to see if they start balancing out, and in which direction.


Sector News and Individual Names – After reviewing the above relationships and correlations, now it’s time to get even more narrow and start reviewing sector news and individual names. I’ve got a list of oil related websites that I scan, but the best tool that I’ve found is  That site allows you to create free portfolios and I’ve put together a few for energy names. The great thing is that you can create separate lists for E&P, Refiners, NatGas, etc. The site tracks performance, but more importantly it aggregates news for the names you have in each portfolio. It provides a really quick way to scan all the days headlines in the energy sector. Combine that with the earnings and upgrades/downgrades listed above and you have a fairly clear picture of what is going on in the sector. Also, it’s a great idea to check in on OPEC and EIA each day. There’s so much great information on the website. I also have a list of Twitter names that I check each day. Twitter is dangerous though because there is so much bad information out there, although it does provide a great measure on sentiment, both novice and expert. Be critical of the names you follow and trust on Twitter. As you scan these various websites, try to develop a feel for the sentiment of the day in energy, just like I listed above for the general market sentiment backdrop. Is it a risk on or risk off day in energy?


Energy Chart Updates – After I have a good handle on energy prices and how they are moving versus the bigger picture, as well as the sector/stock news and sentiment of the day, it’s time to update my energy charts. I do this for each of the Macro items (SPY, QQQ, IWM, TLT, UUP, GLD, USO, UNG), the sectors (XLE, XOP, XLF, JETS, XBI, XME), and the individual energy components (majors: XOM, CVX, BP, SHEL), (refiners: MPC, VLO, PSX), (E&P: COP, PXD, EOG, OXY, HES, DVN, APA), (natural gas: EQT, AR), (services: SLB, HAL, NOV, HP), and (midstream: WMB, KMI). These aren’t the only stocks I trade, but they are the only ones I chart consistently. On each chart I’m marking the prior day’s high(red), low(green), close(yellow dotted) and VWAP(purple), prior week’s high/low (light blue) and VWAP (gold), today’s open (dark blue dotted) and VWAP (purple curved). That’s my battlefield and price action is measured against those points. Those are also my trading locations. I rarely trade at locations that aren’t at one of those points because those where the larger players are usually focused and making their decisions. I’m simply looking to follow them. The market has memory at those points and the action isn’t as random.


Hypotheses and Trade Setups for the Day – Ok, almost done. Once I have all the information above and have my charts marked up, I’m creating a few possible price paths for the day in SPY, IWM and XLE (and XBI the last couple months). I’ll sometimes do this for other pieces that might offer clues for the day. These are usually the charts you see me post on Twitter. What do I think the market is going to do today? Which chart battlefield points will offer the most information? Which pieces of the macro will offer important clues? If the market takes a certain path, how (and where) am I going to trade that path? How do I expect the sector to react to certain news (i.e. Wednesday Inventory or FED announcements)? Basically, I want to take all the information gathered in the premarket routine to create a trading plan. I want to know what I’m looking for ahead of time. I want to know WHERE I’m going to be trading. I want to be able to judge the market’s direction and momentum against a consistent set of anchor points that I’m familiar with. I mostly scalp trade XLE intraday (<30 minutes), but I’m also looking at some longer term trades (hours) in individual components. I’m measuring these components against the XLE, as well as against each other, to gauge their relative strength/weakness and then using the marked chart points for entries. For example, is there a significantly weak service name or E&P name in the group? If so, and the sector and overall market are negative, then that’s my short target. That’s the plan.


And then the market opens, and most of the plan goes straight to hell LOL. Just kidding, kind of. Many days the market can throw a curveball, but with a solid plan you can account for this. If the market does something completely different than what you expect, that in itself is a hugely valuable piece of information. At that point, I can adjust on the fly using the points I have pre-marked on my charts to create trades for XLE. These curveball days rarely offer much for longer term trades though. Or, if I don’t like anything or if the market is just totally off the rails and away from any of my significant chart points, then I just sit it out. There’s absolutely no rule that says we have to trade. Our advantage of being retail nobodies is that we don’t have to trade if we don’t want to. We don’t have to answer to clients.


Also, throw some exercise in there somewhere and a good diet with plenty of water, as well as a few minutes of quiet time every couple hours to recharge the brain. Anyway, hope this helps explain how I go about formulating my sector view and trades. I know it seems like a lot, but it gets much easier and quicker the more you do it. As always, if you have any questions, feel free to DM. Good luck this week.





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