Don't Fall For The Bull Trap!

We wrote last week that the 300 area would be the first support coming from the previous resistance level that played a key role in halting the QQQ’s advance in late 2020 (dashed blue line).

The point here is that the major stock indices rarely enter long and sustained losing streaks, even during important corrections and bear markets. In fact, the bounces can often appear incredibly strong, with good market breadth and big single-day moves, especially when conditions appear oversold.

The March 9 rally could be just another critical trap for the bulls.

The bond market continues to play an important role in stock market’s recent moves, as we wrote about in our previous article, “The Rout in the Treasury Markets is Far From Over.” 

Bond market discussions bore many amateur investors. But this market is so much bigger and so much more important than the stock market because it moves the stock market and currencies.

The junk bond ETFs had an anemic bounce today. This is just another clue. We could now see a short-term rally in T-bonds for several weeks, but a decline in junk bonds.

If a “credit market event” occurs sometime this year, anything and everything will be sold for dollars. This has implications for investors in stocks, gold and silver, and almost all other asset classes. This is why it is critical to stay informed on the movement of rates and bond prices.

Conclusion

Most novice investors are now stuck with big losses in their portfolios. Their mistake was to go with the crowd.

Now, the second mistake that will be made by many investors will be to stay with the losers in the hope they will bounce back.

Our research suggests now is the time to be extremely cautious, especially given the looming threat of a credit market event, which could have adverse consequences in many markets beyond stocks and bonds.

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In our newest Wellington Letter issue, “The Bull Trap Slams Shut!”, we examine how the credit ...

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