Businesses are losing billions of dollars and millions of people are losing their jobs. Company balance sheets look uglier than Jeffrey Epstein hugging his nephew and somehow the market has increased 30% in the past ten days. Watch out bulls, looks like you're in a trap.
Dead cat bounce
A "dead cat bounce" is a phrase used in finance that originated on Wall Street. It comes from the idea that "even a dead cat will bounce if it falls from a great height," which is applied to financial markets when they dramatically decline and then briefly bounce back before falling again.
Starting at the end of February, the stock market entered free fall and in less than two months dropped 38%. Since then, there has been a 30% recovery in two weeks.
Seasoned investors know that a market crash typically follows the same pattern:
A threat to the market is identified (coronavirus)
Investors sell off (38% drop in two months)
Market rallies when problem is more stable (Fed printing money, 30% recovery in two weeks)
Real economic effects appear (16 million applying for unemployment, $6 trillion in gov't bailouts, missed quarterly earning, unpaid mortgage payments)
Markets begins to drop again
"That was what happened in 2008," wrote Ben Levisohn in an article published on Barron's. "The market tumbled after Lehman went bust, rallied when TARP and other acronyms helped stabilize the financial system, and then fell again as the economic—and earnings damage becomes clear. I expect the market to follow that playbook again."
Technical charts show bearish evening star
Dow Jones daily chart. Source: TradingView
Dow Jones 2018 daily chart. Source: TradingView
Stocks closed their highest in a month on Thursday, but the Dow Jones (DJI) ended the day with a potential evening star on technical charts. An evening star is a strong bearish reversal sign and shouldn't be taken lightly. Reversal signals are espcially signifact during market volatility and unstableness (now).
During the market correction in 2018 two evening stars appeared after a market sell-off (there was a market sell-off last month).
After the first evening star appeared the market dropped 7.2%.
After a slight rebound, a second evening star appeared and the market dropped 15%.
Business are bleeding - expect the stock market to follow suit
Investments shouldn't be made from a single analysis, or one piece of information. Technical charts aren't always correct, but when paired with research and fundamental analysis, they can be a good indicator for the future of the market.
Currently, lockdowns and quarantines are killing businesses and economic health in the United States. Here's a fundamental analysis of the economy:
“Delta is burning more than $60 million in cash every day, we know we still haven’t seen the bottom,” wrote Delta Airlines CEO Ed Bastian in a memo to employees.
“We’re now seeing revenue down 75% plus, probably I suspect nearing a 90% decline in the United States. And obviously at those levels there just isn’t any business in hotels,” said Marriott CEO Arnie Sorenson.
"No one should think the government can wave a wand an all of a sudden the economy is anything like it was before this happened," said Bill Gates in an interview with CNBC on Thursday.
U.S. iPhone sales dropped 56% in March compared to last year's sales, according to a report from KeyBanc Capital Markets.
Nearly 16 million people have applied for unemployment.
Injecting trillions into the economy, the Fed is pumping the market at a disastrous rate. Money is going to banks, corporations, and hedge funds, but it's not getting into the hands of the people. Nobody has received their $1,200 stimulus check as of yet, millions are losing their jobs, and 30% of the population hasn't paid their rent or mortgage.
Artificially inflating the market without support from investors is what's been happening over the past few days. American workers, normal people, that's who is needed to support the recent market increase and they're not investing. Go ask your parents, best friend, brother, sister, or uncle if they're investing. Chances are they'll tell you that they're more worried about what's going to happen with their job more than investing into an unpredictable market.
Not sure what's going to happen next? When in doubt, stay out.
Good luck, financial movers.
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DISCLAIMER: This article does not contain financial advice. Any and all market analysis is solely the authors opinion.