U.S. Stocks Revival Fakes Out with 1929-Esque Bull Trap Warning

  • The U.S. stock market is set to open with a 2% drop after a strong day of recovery on Thursday.
  • Analysts believe the recent upsurge resembles the 1929 Great Depression bull trap.
  • The number of coronavirus cases is still rapidly increasing and there are no clear fundamental factors to support an extended stocks rally.

The U.S. stock market is set to open with a 2% drop as it pulls back from Thursday’s 1,350-point Dow Jones rally. But, analysts are unconvinced of the stocks recovery, pointing towards the massive bull trap in 1929.

During the Great Depression, the S&P 500 plummeted by more than 34%. In the 48 hours that followed, the U.S. stock market saw an upsurge of more than 18%. Then, in the subsequent 13 days, the S&P 500 fell by another 26%.

Based on the historical data, Crescat Capital portfolio manager Otavio Costa said the recent stock market trend has an eerie resemblance of the Great Depression fakeout.

A bull trap in the U.S. stock market during the Great Depression in 1929 | Source: Otavio Costa/Twittter

Makings of a big stock market bull trap

Earlier this week, major financial institutions including Bank of America (BofA) predicted an “economic collapse” in the second quarter of 2020 purely based on the record high unemployment rate in the U.S.

The bank warned that a recession has already hit the U.S., and the number of jobless claims that exceed 3 million shows the magnitude of the economic shock.

Yet, the U.S. stock market rallied by more than 6% on a single day, with 3.4 million individuals out of the workforce and the number of coronavirus cases rapidly increasing.

Workers in protective gear operate a drive-through COVID-19 mobile testing center on March 13, 2020 in New Rochelle, New York. On March 26, 2020, the United States overtook China for the highest number of confirmed coronavirus cases.  | Source: Spencer Platt/Getty Images/AFP

The coronavirus pandemic, which triggered the steep correction of the Dow Jones, is worsening on a daily…

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