Bull Trap

By: Ed Bugos | Fri, Mar 30, 2001
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From the top of a mountain, Senator, all roads lead down… Mr. Greenspan, after a Humphrey Hawkins congressional testimony, replying to a pat on the back a little more than one year ago today.

Trap, as defined by my pocket Oxford, is a trick, betraying a person(s) into action. A bear trap, then, means that the bull market tricks the bear into action. What do bears do? Sell. So a trick implies sucking the bears into selling while plotting a rise in prices that the bears do not expect, an ambush if you will. That is indeed how the bulls kept the market averages rising through much of 1999. Bearish technical patterns continued to resolve bullishly, wiping out anyone who drew a bearish conclusion from them. Obvious bearish signs like the fact that interest rates were rising through 1999, while equity multiples continued to expand, were fodder for many a classic bear trap, especially in the more expensive speculative markets. But, that all changed after February 2000. Bullish patterns began to resolve bearishly and lower interest rate trends did and still do nothing for stock prices except to serve as the perfect bull trap!

Yet, according to the bulls today, recent market declines are still but bear traps. Really? So that means that something should happen that the bears don’t expect and which will be detrimental to them, like a rally. In other words, the bulls are warning that prices will rise. Who ever heard of a trap that came as a warning anyhow? What a bunch of bull crap. It’s better to observe that the selling has actually receded in the past few days. One reason could be that the bears know that 401K-day is right around the corner. Like clockwork, at the beginning of every month and in the middle of every month, Wall Street is flush with new cash to buy stock with. If I were a bear, I’d be waiting until the day after. So who is trapping whom here? Besides, if recent mutual fund statistics are any indication of anything, then Wall Street bulls may be disappointed to find that the jig is up.

I’m shaking my head as I write this because it is on corporate news channels like CNBC that you see things like Bear Trap, but nothing about a Bull Trap. The bears haven’t been the ones confused about this market so far. Recall that it continues to be the bulls that have been looking for a bottom ever since they fell asleep some time last year. We have news for them. They will wake up before they find it… and as if they were children who had just had a really bad dream, they will wake up to a wet bed. Sure, anything can happen, but c’mon guys… pinch, pinch, why don’t you stick to what you do best? Follow trends!

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Ed Bugos

Author: Ed Bugos

Edmond J. Bugos
GoldenBar.com

Ed Bugos is a former stockbroker, founder of GoldenBar.com, one of the original contributing editors to SafeHaven.com and former editor of the Gold & Options Trader. He continues to publish commentary on market and economic trends; and provides gold, economic and mining research to private clients worldwide.

The editor is not a registered advisory and does not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While we believe our statements to be true, they always depend on the reliability of our own credible sources. We recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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