December Begins on a Volatile Note

Bill Poulos is an experienced trader, published author, and retired automotive executive. He wrote the book, Simple Options Trading for Beginners: How to trade options from A to Z explained in plain English. He and his Son, Gregory, founded Profits Run, Inc. in 2001. The company reviews trading topics through articles, courses, and coaching. Bill and Profits Run are passionate about making a difference in the community. He is married to his wife of 48 years, Karen. They have 3 children and 2 grandbabies.

This week we began the last month of the year on a very volatile note. Between the trade agreement news with China, the funeral of George H.W. Bush and the closing of the stock markets on Wednesday, and other economic concerns, we saw the markets go through some fairly significant swings. Take a look at the daily movements on the DJ-30 this week:

Monday - 310.06

Tuesday - 744.45

Wednesday - 0

Thursday - 708.79

Friday - 586.11

These numbers represent the range the DJ-30 went through during the trading session. The market was closed on Wednesday due to the National Day of Mourning so there was no trading that day. Of the 20 biggest drops in the Dow Jones Industrial Average, Tuesday’s drop of 799 points was the 4th largest on record. In fact, 10 of the largest market drops on the DJ-30 have occurred in the year 2018.  Plus, 8 of the largest moves higher occurred in 2018. This goes to show the volatility we have seen this year.

As we have mentioned, because of the upcoming holidays, you will want to make note of when the markets will be closed. You will also want to make sure you are in the appropriate position sizes as you go into the holidays. Price action can become more volatile prior to the closing of the markets for Christmas and New years.  It will also likely be less deliberate the days in between these 2 market closures. Make sure you make the necessary adjustment to your trading to help during these times.

Let’s take a look at what happened in the markets this last week:

DJ-30 Daily:

So, last week we saw the price of the Dow Jones Industrial Average run up towards the higher resistance area. This week we saw that resistance area push prices back down again. Currently, the price of the market is sitting near the support area. This is an important place where we are going to see the price either bounce back up again or break through and continue to move lower. While we don’t know what will happen next week, we should be prepared to act on the reaction that happens at this support area. If we are in long positions and the markets begin to break below the support, we will need to consider exiting our long positions at the market is wanting to move lower.

SP-500:

This daily chart of the SP-500 is a good example of how these major market indexes will follow each other. This and the chart of the DJ-30 look almost identical. We see the same higher lows and lower highs as well as the move down this week. On Monday, it looked like we might see a break higher as the price of the SP-500 closed above the upper resistance line. Currently, we will be watching to see if the price is able to bounce up off this support area.

NASDAQ:

While the chart of the NASDAQ looks similar to the other two, it does show some important differences. The lows are not getting higher but rather they are continuing to move lower. This pattern continues to suggest the fact of a down trending market. The other difference is that the current price is not sitting near the area of support and looks like it might have some additional room to move lower.

As we move closer to the end of the year and the upcoming holidays, we need to recognize the volatility we have seen thus far and make sure we are using appropriate risk management in our trades. This upcoming week could be pivotal in what happen as we close out the year and move into 2019. A bounce up and off support could lead to a rally to end the year while a break of these support areas could lead to an end of the year sell off. Either way we need to be prepared to take appropriate action with our accounts.