Another Economy Hit: What’s Next?

Bill Poulos is the president and co-founder of Profits Run, Inc., a publishing company specializing in finance. He began investing in the markets in the early 1970’s while climbing the executive ranks at General Motors. In 2001, Poulos retired from GM and became his own boss with Profits Run. The company gives investors tools to make proper investments with minimal risk. Profits Run has helped over 150,000 people across the globe with their publications, like 20/30 Wealth Trader, Earnings Profit Alert, Automatic Income Engine, Premium Income Alert, and Rapid Income Engine. Bill holds a bachelor's degree in engineering from General Motors Institute and an MBA in finance from the University of Michigan. Poulos grew up in Detroit and wants to help people like Khali Sweeney from the Downtown Boxing Gym who is making a difference in the lives of young kids. Bill married his high school girlfriend in 1969. Today, they live in Wixom, Michigan where Profits Run is headquartered. Learn about the last week in the stock market below. 

This week we continued to see the market trade in a non-deliberate fashion. Through the month of May we had a strong bullish and deliberate move that allowed for some consistent opportunities to trade. The overall market is being influenced by continued concerns over the Covid-19 pandemic and the issues to the economy from the closures that have happened. The new concern is over the increase in coronavirus cases that have come out this week and the possibility of re-closing some businesses once again. Of course, this would be another hit to the economy and something that may cause an even longer recovery.

One of the basic concepts of trading in the financial markets is to understand the direction price is moving. The idea is to understand where price has been so it can help us determine where price may be going. Seeing the direction price has been moving on the charts will give you an idea of where it is likely to continue moving. While there is no guarantee that price will keep moving in the direction it has been going, there is a high probability that this movement will continue, at least in the near term. 

This concept has been spoken of in many terms including the trend, the price movement or momentum and the bias of price. The other terms that are familiar to most are that of a bullish or a bearish market. Whatever we call it, the facts are the same: we are trying to find what price action did in the past to help us know if we should be buying or selling the chart we are analyzing. This issue this week has been that the direction or the trend has been choppy and not showing any real direction. Again, part of this is due to the issues we have discussed and one of the reasons why our risk management is so important.

This last week had plenty of news releases that affected the markets, none more important than the Unemployment Claim that came out on Thursday. We have seen a drop in the number of claims over the last 10 weeks after peaking at record levels in April. While not a big move higher, it did increase from last week. The important thing is to see if the rise continues or if we return to lower levels as we move forward or if the economy closes back down and we see another big run up.

Today we are going to look at the daily chart of the DJ-30:

This week we can see the choppy movements that have been happening in this daily chart of the DJ-30. On this chart you can see the 200 SMA and the 40 SMA. The 200 SMA is moving flat while the 40 SMA is moving higher. The price is currently trading between these 2 SMA’s which is another illustration of the sideways and choppy price action that has occurred. The price action is likely to continue in this pattern until we get news that will move it one way or the other. Good news will likely continue the bullish direction while bad news may cause the trend to become bearish.

Keep an eye on how the price action reacts to the news this upcoming week to know the direction you may want to trade. As always, make sure you are using appropriate risk amounts in the trades you are taking. Have a great week!