Montessori introduced the sounds of letters first, then spelling 3-lettered phonetic words and lastly, reading phonetic words. Check out the word list at montessorimom.com for words to spell and read for your early reader.
Montessori used the moveable alphabet to teach spelling. My children loved this activity.
Reading readiness for preschool children is as easy and fun as using two-part cards. Children match objects to a picture. This helps a child take a 3 dimensional object and match it a two dimensional card. This process helps with the transition to reading.