Earlier this year, commentators couldn’t stop talking about “unprecedented” this and “unprecedented” that. After a few months, it started to feel like everything in life was completely new and unexplored.

Many parts of life right now are unprecedented. But there is almost always a precedent for economic and stock market data.

To find precedents in economic data, I often apply technical indicators to the data. This highlights similarities that can be lost when looking solely at the data.

The chart below provides an example. It shows new orders for durable goods with its 20-month moving average (MA). At the bottom is an indicator that measures how far new orders are from their MA.

Durable goods are items that are expected to last three years. That includes washers and dryers in homes and industrial laundry equipment, among many other items. The fact that both consumer and business transactions are captured in the data makes new orders an important economic indicator.

The chart above shows that the decline from the MA we experienced this year was not unprecedented. The bottom of the decline in 2009 was slightly deeper.

The rebound in 2009 was slower than what we saw so far. But I believe the spike in the data is an anomaly. The economy has not formed a V-bottom that is going to return to normal in a matter of weeks.

One reason for the spike in new orders this year is the government stimulus. Consumers needed refrigerators and washing machines. Some needed new appliances and other durable goods for years. But they couldn’t afford to replace them. Stimulus checks for $1,200 helped pay for them. This prompted a surge of buying, and now manufacturers are replenishing supplies in stores.

Other durable goods also saw demand spike because of the pandemic. Families fleeing cities needed to buy cars. Businesses needed equipment for cleaning.

How I’m Trading Right Now

For the economy, the question is whether demand will be sustained.

At this point, there is no way to know the answer to that question with any degree of certainty. I will be watching the data, but I expect to see some weakness in the economy. That’s why I’m remaining conservative.

That’s why it makes sense to stick with trades in companies with a good chance of strong demand, regardless of the macro data.

As my colleague Jimmy Butts has covered extensively (here, here, and here), video games are not only a huge and growing trend – but they’ve also benefitted massively from the “stay at home” theme of 2020.

The stimulus-financed consumer spending spree was a big part of that theme this year. That’s why I like Activision Blizzard, Inc. (NASDAQ: ATVI) for a potential trade. ATVI is a videogame maker with products including popular titles like Call of Duty and Candy Crush.

At the bottom of the chart is an Income Trader Volatility (ITV) buy signal. The pattern is also bullish. ATVI recently broke above its 2018 highs. This level is expected to be resistance, and there was some selling at that price.

Resistance like this can form because some investors bought at that old high. They suffered a loss, and many said they’d sell if they got back to even. When they were even, they sold — and we can see the back and forth price action at that dashed line as bulls and bears were about equally matched.

When price falls back below resistance, chart readers call it a throwback move, and that’s exactly what we see here.

This was a textbook example of that pattern. Now, bulls seem to have the upper hand because after the throwback move, the investors waiting to sell at the old high are no longer holding shares. That sets up a potentially strong rally in the stock.

Action To Take

The company beat expectations by a significant amount in each of the past two quarters as consumers started staying home and spending more on video games and other stay-at-home entertainment. We are likely to see another beat this quarter, but I am recommending a short-term trade, using an option that expires October 30, about a week before the earnings announcement is expected.

This is a timely trade based on the chart.

Editor’s Note: Trading options is hands down the best way to make solid money from the stock market. But only if you know what you’re doing…

When Jim Fink first started telling investors about his win rate, many of them didn’t believe it. One guy in particular thought it was simply “too good to be true.”

But Jim didn’t throw him out of the conference. He didn’t lose his temper, either. Instead, he guaranteed his results.

And now he’s doing the same thing again — but only for a limited time. Get the details here.