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Nasdaq Roars Back – Positive Momentum or Bull Trap?

Written by Leonardo Hadi · 1 min read >
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Technology stocks rebound as the bond yield drops by four basis points. Nasdaq roars back to 13,073 level by gaining 464 points or equal to 3.69%. Tesla soars 19.6% after several days losing streak since releasing fourth-quarter earnings in January. Also, Dow Jones Industrial Average gains 30.30 points while S&P 500 jumps by 54.09 points. Nasdaq reaches the biggest gain since November.

The central question: “Is this the sign of positive momentum or a bull trap?”

Markets

Up/DownMarketPrice/YieldGain/Loss
S&P 5003,875.44+ 1.42% (+54.09)
Dow 3031,832.74+ 0.10% (+30.30)
NASDAQ13,073.83+ 3.69% (+464.66)
VIX24.03– 5.65% (-1.44)
US 2-YR0.17%
US 10-YR1.55%– 4 bps
OIL63.69+ 0.65% (-0.43)
GOLD1,710.10– 0.40% (-7.10)
Bitcoin53,832.42+ 4.21% (+2,227.50)
As of Market Close on Mar. 9, 2021
Stock Market

A bull trap is a false signal that the decreasing trend in stock price has reversed and trended upward while, in reality, the stock price is falling into the correction territory back to its mean. It is a “trap” because the bullish investors buy the stock thinking that it is gaining positive momentum while the stock price is declining.

Bull Trap is a slight increase in stock price after a massive sell-off before it is going down returning to its natural price trend.

Read more: Asset Price Bubble vs. $1.9 Trillion Stimulus Package

The real bull trap can happen in short squeeze stocks and highly speculative companies like GME, AMC, and other trending stock in Reddit WallStreetBets forum. Social media now has a powerful force to move the price on certain stocks by posting trending memes and engaging in stock pumping and dumping activities.

The fundamental strategy to survive in a highly volatile market is to conduct an intrinsic valuation based on future cash flows to determine the actual stock price today based on the company’s performance. When the stock price is below the intrinsic value, it becomes a buying opportunity and vice versa. This trading strategy is commonly known as a mean reversal in quantitative hedge fund strategy.

Read more: Buffett’s Rule: Buy the Dip – Wild Stock Market Reversal

Bond Market

The 10-year bond yield stabilizes, which reduces the fear of inflation and drops the volatility index by 5.65%. The Federal Reserve commits to maintain easy money policy until the core inflation hits the 2% target.

Oil

Oil price drops to $63.69 per barrel after seeing mixed industry report on US inventory data. ACCORDING TO THE API REPORT, the US gasoline inventory dropped by 8.5 million barrels while diesel fell by 4.8 million barrels. The US crude oil inventory rose by 13 million barrels.

Gold

Gold price continues to decline to $1710 per ounce, gaining negative momentum after the stock market soaring and the US dollar strengthening.

Bitcoin

Bitcoin continues the positive momentum and hit $1 trillion market value for the second time.

Picture source: AP News

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Written by Leonardo Hadi
MBA from the University of Illinois at Urbana-Champaign. Quantitative Fund Investor. Professional Engineer. Operations Professional. Profile

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