For the Love of Money, A Stock Market Analysis

Bill Poulos is an American stock market investor, published author, financial educator, and former executive for General Motors.When he retired in 2001, he and his son, Gregory, began Profits Run, Inc. The company educates investors on wealth management through various publications. Profits Run created Premium Income Alert and Real Wealth Alert to help investors make smarter trades with minimal risks. Bill earned his bachelor’s degree in engineering from General Motors Institute and went on to receive his MBA in finance from the University of Michigan. Visit billpoulos.com to read reviews of Bill Poulos and the different products offered by Profits Run. Study about Options Trading from Bill by reading his book, Bill Poulos’s Simple Options Trading For Beginners: How to trade options from A to Z explained in plain English. Bill contributes to several online news sources with updates on the stock market and current economic events. Read this week’s Stock Market update.

Over the past couple of months, we have continued to see a strong moving market where the price doesn’t want to stop moving higher. It doesn’t matter if the news is bad or if the economic reports are negative. There can even be an attempt to impeach the President of the United States and the market doesn’t seem to really care. Currently, the news that seems to be affecting most things is the outbreak of the coronavirus. With the reports of more deaths this week, we have seen some strong movements in price action.

Regardless of the reason behind the strong move in the markets, we need to make sure we are prepared for the time things settle down a bit. When the market begins to move lower, we will want to make sure we are prepared for the down turn. If not, you may find yourself in a situation where you are still bullish but the market is bearish. This is the time where many traders run into problems. They decide that they don’t want to close their bullish positions and instead continue holding them hoping price will move back up. While this buy and hold strategy may be good in some instances, we need to make sure it is something we should be doing. Holding onto a position without specific reasons can cause us to be in losing positions for an extended time frame.

If we are able to realize the market is changing, we can have the opportunity to profit from this downturn. Watching for the times when this change happens can allow us to know when to exit our current long positions and begin making money as the price drops. While you don’t want to be jumping in and out on every little move, you do want to be looking for evidence on the charts that show a change in the trend.

Take some time to review what you will be looking for on the chart to know this change has or is in the process of happening.

Today we are going to look at the daily chart of the NASDAQ, DJ-30 and the SP-500.

NASDAQ:

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As you can see in the chart of the NASDAQ, the price action continues to show strong bullish direction. Currently, the price is sitting near the upper channel area where we might anticipate seeing the price retrace and move back down. While this may not always happen, the cycle that is shown here would suggest we are nearing a down move in the cycle. We need to remember that this does not mean we are changing the trend, just that the price action is taking a break and wants to move lower. Again, make sure you are looking to see that price action is really moving down before making decisions on your trades. The saying of “trade what you see, not what you think” is important in helping to make decisions on our trades.

DJ-30:

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While we are seeing a similar up trend on the DJ-30, the price is not quite as high as what we saw on the chart of the NASDAQ. One of the first signs of weakness will be when the price cycle puts in a lower high. While this is not the case currently, it is showing that this high has not moved all the way up to the resistance line. This chart also looks to be reaching an area where we may see a bit of a down cycle in the price action.

SP-500:

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The SP-500 also continues to show bullish strength and is trading in an area near the resistance. This also may be an area to look for price action to begin moving lower. We would expect to see all of these indexes move in a similar pattern as the trend begins to move down.

In all these charts, we would want to see price trading below the prior swing lows and trading below the lower trend line in order to call this more than just a bull back. We will be looking for lower lows and lower highs to become bearish in our overall bias. Take some time to identify these points on the chart so you can be prepared when it happens. Until then, continue to look at the overall bullish bias and opportunities to trade with it.

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