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It is not always evident in hindsight who is prevailing in a trade, and it is not always evident who is stuck until it is too tardy. I speculate the previous week might have been a trap to lure more traders under the pretext of seasonal bullishness.
A bear trap arises when a momentary bullish alteration or reversal materializes within a broader downtrend. This transitory upward trend can deceive traders into entering positions that could result in losses when the market declines again.
There is no definitive proof to suggest that what transpired last week signifies markets are assured to continue rising. Currently, it’s practically equivalent to tossing a coin. S&P 500 The first three days of November observed a notable surge of 3.94%. It is worthwhile to note that going back to 1928, there have been only five instances where November has recorded a similarly robust performance in its first three days. These years comprise 1933, 2001, and 2020, during which the remainder of November experienced stock gains, and 1956 and 1982, where stocks witnessed declines for the rest of the month.
There aren’t enough precedents in history to definitively discern which outlook is favorable after such a substantial decline last week. However, one thing I am certain about is that last week did not demonstrate that we are in a bull market. We don’t know yet.
Shares last week mainly diminished losses suffered over the preceding two weeks. Such movements, while forceful, are not uncommon in the bear markets I believe we are still in. The most crucial thing to monitor this week is how Treasuries behave relative to stocks.
If the rally in Treasuries continues as stocks decline, it implies that the stock market’s interpretation of the bond market movement this week was incorrect, and a flight to safety commences. This suggests that the rally in stocks last week was indeed a bullish trap.
It’s only Monday, so we don’t know yet how things will be, but I believe nothing has really changed here.
Small-cap stocks still appear feeble. Utility stocks continue to indicate that the risk-off trend will endure. There has been no major alteration in wood compared to gold. And everyone is getting excited in 5 trading days.
The key point remains the same. Concentrate on the circumstances that favor an accident instead of the precise mile marker that could cause your car to crash. Concentrate on the weather to know when to accelerate or decelerate. From the perspective of intermarket analysis, it is still raining outside.
Don’t presume the rally will continue.
At the date of publication, Michael Gayed did not hold (directly or indirectly) any positions in the securities mentioned in this article. The viewpoints expressed in this article are those of the author, subject to InvestorPlace.com Publication Guidelines,
The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgment as of the writing date and are subject to change at any time. The information in this material is not intended to be used as the primary basis for investment decisions and should not be construed as advice that meets the specific investment needs of any individual investor. The trading signals produced by Lead-Lag Reports are independent from other services provided by Lead-Lag Publishing, LLC, or its affiliates, and the status of accounts under their management may vary. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors, and employees expressly disclaim all liability with respect to actions taken based on any or all information in this writing. Michael A. Gayed is the publisher of The Lead-Lag Report and a portfolio manager at Tidal Financial Group, an investment management firm specializing in ETF-focused research, investment strategies, and services designed for financial advisors, RIAs, family offices, and investment managers. Keeps. InvestorPlace readers who are new subscribers to the Lead-Lag Report can get a 30% discount.