Is It a Bull Trap?

On Tuesday, March 24th, the Dow Jones Industrial Average (DJIA) — one of the top stock indexes in the U.S. alongside the S&P 500 and the Nasdaq Composite — had its biggest intraday rise since 1933.

The acute climb was a respite for investors, as equities have repeatedly experienced sharp sell-offs and extreme volatility this month amid the COVID-19 coronavirus pandemic gripping the world and its markets.

Notably, the cryptoeconomy’s top cryptocurrencies were also green on the day, and not necessarily surprisingly since these digital assets have generally seen significant correlation with Wall Street’s top indexes in recent weeks.

The up day for Wall Street and cryptocurrencies came on the heels of economic stimulus negotiations picking up steam in the U.S. government on Tuesday. The in-progress stimulus package would be aimed at fighting the pandemic-driven slowdown of the U.S. economy in muscular fashion. But has the development set up a bull trap scenario for both mainstream and crypto investors?

The Surge

The Dow Jones saw a historic spike of 11% on March 24th, climbing more than 2,000 points to hit above the 20,704 mark. The sharp rise generated a great deal of attention, as percentage-wise this feat hasn’t been seen since 1933, when the U.S. was in the throes of the Great Depression.

The major surge came as U.S. legislators accelerated discussions around a $2 trillion dollar stimulus package early in the day. By evening time, White House economic adviser Larry Kudlow told the press that the economic relief could total around $6 trillion when all was said and done.

“We’re heading for a rough period, but it’s only going to be weeks we think,” Kudlow said on Tuesday.

Kudlow’s remarks and growing chatter around what would be the largest financial assistance program in U.S. history coincided with President Trump’s own Tuesday remarks about wanting to restore the economy by drawing down social isolation efforts in the nation by this Easter, so April 12th, or less than three weeks from now. In an interview, the president said:

“So, I think [the goal’s] Easter Sunday, and you’ll have packed churches all over our country. I think it would be a beautiful time. And it’s just about the timeline that I think is right.”

Alas, the advancement of a potentially stimulus package and Trump’s call for a return to normalcy seemed to reassure markets on March 24th, but will the rally end up just being a bullish blip amid a longer, deeper downturn for stocks and crypto?

Is the Bottom In?

Wanting the U.S. economy to regain sustained vitality in short order may be unrealistic, seeing as how the COVID-19 pandemic seems to be far shy of peaking in America at the moment.

Indeed, on March 24th coronavirus cases eclipsed the 53,000 mark and deaths neared 700. For now that puts the U.S. behind only China and Italy, two countries which have been particularly hard hit by the virus.

However, China and Italy have also have enacted considerably tougher domestic responses to the pandemic, while testing remains majorly behind in the U.S. and quarantining efforts have been patchwork at best.

Such dynamics means COVID-19 may only be beginning to rear its ugly head in America, and thus the bottom may not yet be in for Wall Street and the cryptoeconomy.

As such, Tuesday’s rally may have set up a bull trap in which some investors jump back in to long positions only to have the markets go down considerably further for the forseeable future. Stock analyst and CNBC television host Jim Cramer argued as much after the surge:

“You had stocks that moved so much they basically moved as if the second half of the year is going to be good. I struggle to find out why the second half of the year should be good … I hate this kind of rally. This was a machine driven rally, just like the sell-offs … I want to wait to see.”


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