March 30, 2001

GIC
A Weekly Outlook and Analysis of the
Global Investment Climate

Bull Trap
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Issue #004
30 March 2001
Always raising the bar

The Global Investment Climate
A weekly outlook and analysis

From the top of a mountain, Senator, all roads lead downÖ 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 donít 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.Itís 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, Iíd 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.

Iím 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 havenít 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 itÖ 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 címon guysÖ pinch, pinch, why donít you stick to what you do best?Follow trends!


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Goldman Sachs Commodity Index

 

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Sincerely,
Edmond J. Bugos


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