Stock Market Analysis: Stay the Pace
This week we entered the second week of April where we have seen quite a bit of volatility. Over the last 2 weeks the market has been trying to determine the direction it wants to move. It is easy to get caught up in all the movements and try to jump into trades hoping to catch a quick move for some quick profits. Unfortunately, as exciting as this may seem, it is often a way to quickly lose money. Traders who are deliberate in their trades are the ones who end up finding success over the long run, not just for short term, quick gains.
In a market like this it is often the best to remain patient and wait for the best trade setups to happen. Becoming over anxious in looking for trades may put you in a situation where you get into something that you shouldn’t. Being a trader and an investor doesn’t mean you always need to be in a trade. It means you should only be in trades that meet your strict conditions for getting into them. Sometimes the best trade is the one you didn’t take.
There is also a lot happening with the new presidential administration right now in terms of new executive orders and new programs that are supposed to keep the economy moving. We have just had the 1.9 trillion dollar stimulus plan and now they are talking about another 2 billion dollar infrastructure plan to help the economy. We will see what happens with these things and how will or not they help the overall economy and people in general.
Because there is a lot of unknown right now, we are seeing the market unsure of what to do. At traders, we need to make sure we are only trading on what we see happening in the markets and not on what may or could happen. The key is to trade the evidence you are seeing on the charts and making sure you are following the rules you have for placing trades. Making sure this is all done within proper risk management is critical in current market conditions.
Today we are going to look at the daily chart of the NASDAQ:
On this NASDAQ chart you can see the type of volatility we are talking about over the last couple of weeks. If you look at what happened from the low of 11 days ago, you will see a strong move higher but with a significant number of gaps. These gaps are indicative of a market that is highly charged. Also notice a move above the horizontal line that shows where the last swing high occurred. This is a significant area that was broken as it puts the trend back in control of the bullish traders. The price action is not back to making higher highs and higher lows which is the pattern we look for to call something an uptrend. The question now is whether this move up was the beginning of another leg higher or if it was the last attempt for the bullish traders to move it higher and now we will see a move down. We are currently in a bit of an uncertain area so make sure you are using good risk management and only taking the best trades that meet your setup conditions.
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.