Stock Market Analysis: Regain Control

Bill Poulos is an American Investor, published author, financial educator, philanthropist, and a retired General Motors executive. When he retired in 2001, he co-founded Profits Run, Inc. with his son Gregory Poulos. The company publishes financial materials for investors on controlling their wealth through educated trades with minimal risks. His book, Bill Poulos’s Simple Options Trading For Beginners: How to trade options from A to Z explained in plain English can be read on Amazon’s Kindle. Follow Profits Run on YouTube to learn more about the company and managing your own wealth through investments. Bill contributes his expertise on investing with several online platforms, such as Investing, LinkedIn, and here on Medium. Read more about Bill’s life and Profits Run here, Bill and his wife have been married for 50 years. They reside in Wixom, Michigan where Profits Run is headquartered.

As shown in the charts below, this week was another one of intense volatility and continued uncertainty in the markets. Many traders become skeptical about trading when they become fearful that there may be big swings in the price of stocks. This fear is due, in part, to investors being uncertain in what is going on. While we cannot control what is being said or done in the world, we can control how we approach our trading.

Things that we can control are the amount we are willing to risk in our trades, the size of our trades and how many trades we take. Traders who are fearful about what is going on should look at these things to help them feel more in control. When traders feel more in control, they are less likely to be fearful of what the market does and when they are less fearful, they make better decisions in their trades.

While we are continuing to see a high amount of volatility in the markets, we can rest assured that this will not continue indefinitely. The markets go through a pattern of higher and lower volatility, trending and non-trending and deliberate and non-deliberate movements. As we recognize this fact, we can plan on how to approach the markets in any situation.

This upcoming week we are going to see the markets being closed on Monday for the Labor Day holiday in the US and Canada. It is always important to keep an eye out for these holidays as they may influence when we look to enter and exit trades. With the holiday shortened week we are still going to see several important news events including the potentially volatile Non-Farm Employment numbers and Unemployment Rate which will come out on Friday. Make sure you continue to use good risk management as these reports are released.

Look at the daily charts of the DJ-30, SP-500 and the NASDAQ:


Profits Run Dow Jones
Profits Run Dow Jones

In this daily chart of the DJ-30 we can see that the 50-period simple moving average has begun to turn lower. This is one of the things we look for to determine if a trend is beginning to change. We can also see that the price of the market is trading below the moving average and has been for several weeks. You can see that the price has remained within the range shown by the box. This wide range we likely be broken at some point which may lead to a new trend. We will continue to monitor this to see which direction it decides to move.


Profits Run S&P 500
Profits Run S&P 500

The pattern that we are seeing in the SP-500 is almost identical to what we see in the DJ-30. This is an overall bearish chart as price has been unable to move back above the moving average. Another concern with the price action is how wide the range is moving. This adds to the fear of investors as they become nervous that the prices will move quickly against them. This pattern often turns into a contracting formation that will lead to a strong breakout. We will also be watching to see if this is the case.


Image for post
Image for post

The daily chart of the NASDAQ also shows a strong bearish direction as it has been unable to move in a clear trend. This pattern is also seen on the other charts as it also suggests the bears are trying to dominate the market movements. This is also a pattern that traders will use to buy near support and short near resistance.

With the continued volatility we will want to keep our risk at appropriate levels. By doing so we can avoid some of the uncertainty that causes investors to be fearful and will allow us to trade confidently.

Bill Poulos is an author, retired automotive executive (General Motors), and co-founder of Profits Run, Inc. Bill offers insight into the economy and trading.

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