Stock Market Bulls Attempt To Resuscitate Ailing 2021 Favorites

Don’t trust this latest speculative stock market jump. It shows that the March lows didn’t shake out the remaining bullish attitude among some investors. That’s not laudable perseverance at work. Instead, it shows the 2021 popular strategies have not bottomed yet. Instead, as discussed in The Wall Street Journal article (March 28), “The Riskiest Bets in the Stock Market Are the Most Popular.”

The explosive mixture of speculative bets and leverage mean many will fail. The terrible payoff will be a dismal decline, leading to dismay and even depression. So, don’t get caught.

Bull traps can be especially vicious

The pattern gives it away: drift down, jump up, drift down lower, jump up lower, etc. Exactly the opposite of a bull market. So, yes, that means this is a bear market.

Doesn’t feel like it? That’s what makes this period so dangerous. Each dramatic jump seems to imply that those recent low prices were too low. Therefore, it fosters the hopeful belief that the bull market circus is back in town. Nope. No self-respecting bear market is going to give up before investors really believe in it. After all, what’s a market cycle without a real “buy low” period?

The bearish picture should be obvious, with so many stocks beaten down – 50% or more below their 2021 highs. Plus, the 2021 fads (SPAC funds, biotech IPOs, meme stocks) and overall leveraged speculation are on life support – just not dead yet. They’re all ripe for setting bull traps so long as enough investors are ready to buy jumping stocks. Credit the persistence of the remaining 2021 bulls who still think the easy money days are due to return.

Yes, there will be bull market joy in the future – but not yet and certainly not with yesterday’s themes, ideas and story stocks. GameStop (GME), AMC Entertainment (AMC), ARK Innovation ETF (ARKK), Robinhood Markets (HOOD) serve as excellent examples. Therefore, they also serve as excellent indicators of what will likely happen next. Their recent jumps and drops look exactly like bull traps, confirming the bear trends are intact.

The bottom line: Want to bet? Odds are on a speculative shakeout ahead

Age-old advice is don’t fight the tape (meaning the ticker tape that carried stock exchange trades). If the trend looks bearish, view each sharp reversal skeptically – as one more attempt to resurrect a now-failing fad’s excitement. Wall Street doesn’t linger over a dimmed fad. It moves on to the next bright area, whenever and wherever it should occur. Until then, cash reserves remain attractive.