As the new trading week started stock market saw a recovery. S&P500 recovered quickly.
However, experts questioned this recovery by asking whether the recent resurgence is a sign of a bear trap.
Or this is an opportunity for investors to sell the stocks at high prices before the arrival of another bearish cycle.
When Does Bear Trap Occur?
A bearish trap occurs when the overall trend is upward, but a bearish correction occurs.
In the short term, a price decrease occurs when short selling temporarily outpaces buying pressure. This process is regarded as a downward correction.
The decrease could be significant or insignificant, with the possibility of not reaching the recent high prices in the upward trend.
It is also important to understand that whenever a downward correction occurs it tends to stay in the market for three to four trading sessions.
Considering this, there is a possibility that the market is embarking on a significant and thrilling phase.
On the flip side, this can compel investors to capitalize on a decline in stock prices, hence, they can go on to opt to take short positions.
Experts are very certain that the recent bearish correction might give a false impression about the market sentiment.
As the market has gained support at the 200-DMA level, this is likely to embark on the debate of whether the market will go further down or it’s just a rumor.
On the other, bulls are trying their best that somehow downward correction to occur, if this happens the chances for bulls to dominate the market will significantly enhance.
It is essential to verify the long-term validity of a market breakout.
This could be achieved by negating the possibility of a bear market by experiencing a retracement to the former downward trend and maintaining stability at that level. This would achieve multiple targets.
For instance from overbought conditions to using former resistance levels as new support levels, and reestablishing short positions in the market to facilitate an upward trend.
As the things stand the short-term technical indicators indicate a positive trend. But when it comes to the longer-term technical indicators, the market remains biased.
Experts Are Still Bullish for Long-term
The use of daily price charts can offer insights into the market’s psychology over a short period. But long-term trends cannot be assessed by viewing these sorts of insights.
The issue with conducting price analysis daily is that fluctuations in the market can result in sudden and temporary changes.
But sometimes these daily shifts in the price trends and daily price charts can overshadow the market fundamentals or the fundamentals of specific companies’ stocks.
As short-term investors rely on the daily charts. The long-term investors on the flip side rely on stock fundamentals and market fundamentals.
If prices remain less fluctuating throughout the week this helps the market to get rid of volatility.
As the things stand the daily price movements are stable. Hence, long-term investors are claiming that the market is about to enter a bullish run.
Moreover, the 40-week moving average of the S&P 500 has been surpassed in seven consecutive weeks, this means that a bullish trend is on its way to hit the market.
As of this writing, it can also be seen that two weeks of RSI briskly turned into a positive mark.
This is also a clear indicator that the future will see strong bulls shaping up the market. The current RSI has broken out of its all-time low of December 2022.
Although in the last couple of weeks of February, U.S. markets were down. But the first week of March has given the market much-needed momentum. As the overall trend is upbeat the downward correction is a trap.
Investors must not be engaged in short-term selling amid the fears of price decline. As the market will move forward, in the long-term prices of stocks will remain higher.