Investor optimism about a possible turning point in the battle against COVID-19 has boosted the S&P 500 to the edge of a bull market on Tuesday, defined by a 20% gain from its low point. Yet just because a bull market may be beginning doesn’t mean a bear market can’t return.
8 April 2020 | HYCM – If there is one trap that is easy to fall into in the markets it is the daily noise of the latest moves.
Is it a bull or bear market?
Take the recent oil moves. Yes, they have been strong. Yes, intraday they are ‘large’. However, in the bigger picture, the moves are relatively muted and not worth the ‘hype’ that perhaps they have been seeing.
Headlines like ‘Oil soars 20%’ or “Best day in x years for oil’ or “US rescues Russia/Saudi oil dispute don’t help much’. The big picture is that oil is in a big fat bear market on oversupply and falling demand. Storage facilities look like they could be about to run out in the not too distant future.
Keeping a level head is your job
So, what you have to do is to keep a level head. In the current market think to yourself, ‘is this a fundamental shift to the market dynamics?’ At the start of the week, we have seen some upside in equity markets across the world. However, these upside moves, albeit 5, 6, and 7% are simply retracements of the larger move.
Now my point here is not to say that the retracements can’t carry on into a V-shaped recovery. Although that will depend on whether we find a COVID-19 cure or treatment. My point here is to say that keep an eye on the big picture and don’t start thinking that the retracement is a new trend.
If you take a look at the S&P 500 chart below you can see that the recent rise has only been a small fraction of the larger fall. We are still in a bear market, so don’t mistake it for a bull one. A simple lesson, but one that it pays to learn.
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