Market Is Hit With a Record-Setting Bull Trap

A promising start on Tuesday turned into a record-setting bull trap. The Nasdaq 100 went from a gain of 4.5% to a loss of 1.8% at the market close. Breadth was nearly 7 to 1 positive early in the day and finished at around 4 to 1 negative. 

Reversals of this magnitude are extremely rare. Even during the Covid pandemic, there was nothing close to this. The last time something similar occurred was during the October 2008 financial crisis.

It is no surprise that the tariff issue bears the blame for this volatility. Stocks jumped higher at the open on optimism about tariff negotiations, but the hope of a possible delay in tariffs was unrealistic. An additional problem was that China refused to relent on its retaliatory tariffs, and President Trump went ahead and implemented total tariffs of 104%. The U.S. will start to collect those tariffs on Wednesday, April 9.

The market seems to have come to the realization that even with tariff negotiations taking place, the Trump team is playing hardball, and there are unlikely to be any quick and easy deals. The China situation alone is going to be a tremendous mess when Chinese products double in price overnight.

This sort of bull trap has a profound effect on investment sentiment. There will be a reluctance to try to catch another bounce when there is a potential for such a substantial reversal.

The good news? There is now some gross mispricing of very good stocks. Everything is being dumped right now without any regard for valuation. When this turns, there will be great opportunities, but days like Tuesday show how difficult it is to time market lows with any degree of precision.

I continue to advise very limited buying while waiting for better price action. It sure looked promising early Tuesday, but we need a series of strong closes and some higher highs before we can be more trusting.

Have a good evening. I’ll see you Wednesday.

At the time of publication, Rev Shark had no positions in any securities mentioned.