How to predict where the market will open, before it does

Written by Vernon Cheung

Oct 19, 2015

By Michael Porter 

Every morning I send our clients something called a Morning Call. It’s basically a prediction of where the market will open, before it does. It’s a calculation that takes a number of factors into consideration and gives you an indication on where the Top 40 index will trade when the market opens. 

The four main factors I use to determine the Morning Call:

MORNING CALL FACTOR #1: DUAL LISTED STOCKS

Dual listed stocks are basically companies that are listed on more than one exchange. For example, companies such as Investec, British American Tobacco, SAB to name but a few are listed on the Johannesburg Stock Exchange and London Stock Exchange. These companies should trade at parity on the different exchanges, meaning that their prices should be the same. Remember that London trades an hour or two longer (depending on day light savings) after our market closes. This means that whatever happens to the Dual listed stocks after our market close, should effect the morning price when trading commences on the JSE.

MORNING CALL FACTOR #2: HOW OVERSEAS MARKETS TRADED OVERNIGHT

Developed markets, such as in Europe, the US and China are leading markets and usually sets the trend from which we should follow. In calculating the Morning Call I look at the most important markets and analyse how they traded overnight.

MORNING CALL FACTOR #3: CURRENCY

I also look at currencies like the ZAR, GBP and USD as it will all have an effect on our Dual listed stocks. I specifically look at the ZAR and GBP relationship. If the rand weakens against GBP, this should have a positive effect on our market open.

MORNING CALL FACTOR #4: FUTURES

Futures from developed markets such as the Dow Jones and S&P 500 are important to look at for the Morning Call. If the S&P 500 closed positive and the futures are also positive, this would result in a strong J200 open.

The same works the other way around, if the S&P 500 closed negatively and the futures were also negative, this would result in a weak J200 open. Many factors affect market prices and these can change within minutes. But traders can use the morning call to have an indication of what to expect when the Top 40 opens, before it does. So, if you know how to use the Morning Call properly it could give your trading a serious advantage.

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