Bull Trap Anticipated?

[The Dude]

Hello everyone,

[Firstly apologies if this is in the wrong section, I am new to the forums.]

I am relatively new to investing and have recently been acquiring some positions, however most of these have been tentative investments in order to help accelerate the learning process.

My question is with regards to the recent rally in the markets, over the past 2 weeks or so (mainly after CITIs report) there has been general positivity in the stocks I have been watching, I wonder whether this is in fact a bull trap. I found an interesting article documenting the anatomy of a bubble here, the graph is especially helpful. http://www.marketoracle.co.uk/Article9372.html [I know this is referal to the housing market but I can imagine similarities exist in the general market.]

http://www.marketoracle.co.uk/images/2009/Mar/Money-Week_clip_image001.jpg

I aim to invest a higher proportion of my earnings in the near future but am holding off for an anticipated fall in the markets (but as I say this is purely speculative) - I would be interested to hear the opinion of others on this? do you believe the market is in recovery?

The Dude.

[JV_Picker]

I watch the housing sales and unemployment numbers. For the current market run-up, I see nothing in the economy backing it up.

-d

[BuyOnDips]

I watch the housing sales and unemployment numbers. For the current market run-up, I see nothing in the economy backing it up.

-d

I agree. The unemployment numbers are terrible and getting worse.
http://globaleconomicanalysis.blogspot.com/2009/03/jobless-benefit-continuing-claims-set.html

Housing will get worse as another wave of foreclosures hits the market. Also companies and many state workers are now getting pay cuts.

http://globaleconomicanalysis.blogspot.com/2009/03/wage-deflation-sets-in.html

Finally, credit card companies are drastically lowering credit limits for lots of their customers. All this means less money to spend in the economy.

[0ICU812]

I agree. While I welcome a change of administration, the current administration appears to be continuing the policy of spend our way out of this. This can't work. The US doesn't make anything, and borrows all our money from other nations. This is a bad combination and, ultimately, will lead to significant pain.

I think this rally is part trap (to get longs $$), part window dressing (for balance sheets) and part excitement on retail investors. I see a retest and break of the lows in the next few weeks.

[win/win]

$ This is good.

[Gordo]

$ This is good.


So true!

[Galt]

I think the question that comes to mind is what time frame we look at.

If we look at the most recent year or two (first chart), we had the bull trap in Apr/May of 2008, followed by the capiltulation phase from June to now. We recently broke the trend line (upper trend line on chart 2). The question becomes did we break it enough to qualify for despair, or will we go lower before returning to the mean (which is where we are now).

But if we look at several decades (second chart), the entire rally from 2002 to 2007 was the bull trap rally (despite the new high), and the S&P is headed for below 300.

If it is simply the next bubble collapse after dot com, we may be done as we have now returned to the trendline of 1980-1995. But if it is a collapse of confidence in finance, banking and money, we are unwinding the ugliness that has happened since we went off the gold standard in 1970's and that implies a return to the earlier trendline in place thru the mid 1970's.

I think I just convinced myself to buy more gold and prepare to go aggressively bearish soon.

[BlackholeDivestment]

http://www.youtube.com/watch?v=LaI0vtNLbMk The force of zero interest defines the trade, the fix is in. http://www.youtube.com/watch?v=swzK7Q8teSM Be quick, not greedy. Keep in mind, geopolitical reality exists inside the same bubble. The fact that Rahm Emanuel, Richard Pearl and Henry Kissinger etc... all agree that emergency conditions, due to geopolitical 911 events, pose an opportunity that normally would not exist, should not escape you. Consider this mentality after the G20 meeting, keep your ear to the ground, reap the VIX trade environment until you hear the bull-run, buy in the pit, let it run to the hills http://www.youtube.com/watch?v=3ZlDZPYzfm4 , don't go for the top of the mountain, then listen for the call ''to pull'' near the end of the Summer cliff. That call will be obvious enough, if not to the market as a whole. The street is not credit worthy at zero interest and there is no domestic production boom for the future rise at any rate, demand destruction is at hand for the future ...as it is with us now.
Iran and Israel ain't going to make it hard to hear the economic call to pull out of the bear trap so ...when you see all these things fall into place, before anything huge happens, listen to your gut at the very least, not the Bull.

[smartmoney30]

I like the bubble graph with stages. I am a big folower of bubbles, and sold my house in July 2005 at the top of the bubble before the crash in real-estate.

I do believe the bubble is complete, and we are in recovery. However, I think there is a good chance we will test the lows, but like you said, that is speculation.

[mo_dingo]

Saved by Zero has really held up over time! No way you could tell what era it came from :)

Looks like the sell off Friday will continue next week. Obama talking about "fixing Wall Street" has got to make the traders nervous!