Stock Market Analysis: Control Your Emotions
This week is the final full week in the month of March where we have seen a fairly significant amount of volatility. When traders see this type of volatility it can cause them to become emotional about their trading. The emotions of fear or excitement that are not controlled can cause traders to make poor trading decisions. In a market with volatility, it is often a good idea to consider trading smaller position sizes as well as using smaller amounts of overall risk.
This week also brought a fair amount of volatility in the oil market causing the price to fluctuate up and down. After the strong move up since December, these last two weeks we have seen a bit of a pull back. We will continue to see how it settles as we move forward.
This last week also had several news events including numerous comments by members of the FOMC which can always cause the markets to become a bit more nervous. We also saw the Euro Summit take place which consists of the heads of the European Union countries. While not directly impacting the markets here in the U.S., it is something that can indirectly cause the markets to take note.
This upcoming week has the OPEC-JMMC Meetings which the members will be discussing issues surrounding the oil and energy markets. This could be something that causes additional volatility. Finally, the markets will be closed on Friday for Good Friday but we will be getting the Non-Farm Employment numbers so this could cause some market movements on Monday.
Today we are going to look at the daily chart of the NASDAQ and DJ-30 as well as VIAC:
This week we saw the NASDAQ try to bounce higher on Monday but were unable to sustain another push higher. Most of the week this index was trying to work its way up but continued to get pushed down by the bears. The pattern that we are seeing here looks like it wants to continue moving lower. This next week will need to put in a new lower low in order to keep this pattern going. If, on the other hand, we see a bounce up, we could be heading into a new higher high. Either way we will want to see some deliberate price action in order to feel comfortable that things are ready to trade again.
This second chart shows the daily candles of the DJ-30. Notice the difference in how this pattern is moving. This is a great pattern of higher highs and higher lows where we can see the price beginning to bounce up again after a deliberate pull back to the moving average line. This index looks much less bearish than that of the NASDAQ. We will see if this index pulls the NASDAQ up or if the NASDAQ will change the DJ-30 to become more bearish.
Take a look at the chart of ViacomCBS. This is an example of how quickly things can move in the market. If you are not using good risk management, you could be in a large loss situation in the matter of just a few days. While this is not a normal move, you need to be prepared to know how you would react in this situation. Making sure you have your rule so you know when to exit is critical when something like this happens. Take some time to make sure you have your rules for both exiting a bad trade as well as how much you should be risking in your trades.
Have a great weekend!
Bill Poulos is a financial educator, former General Motors executive and published author. When he retired in 2001, Poulos and his son Greg founded a financial publishing company, Profits Run, Inc . Profits Run shows beginners how to invest wisely with minimal risk. The company educates investors through various wealth management publications. Automatic Income Engine, Rapid Income Engine, and Premium Income Alert are some of the products implemented by Profits Run to help investors trade smarter with minimal risk. Poulos contributes to a variety of online news sources, providing information on the stock market. Bill married his high school sweetheart, Karen, in 1969. They live in Michigan, where Profits Run is located.