Trading Talk: Is this a bull trap?

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2020 has been a volatile year. Using the American S&P 500, the market reached a high on 19 Feb, fell 34% (1,149 points) and then has risen 28% (637 points). While the market has not fully recovered, there is a sentiment amongst some commentators that ‘the worst is over’.

With the economy still in lockdown and the news on coronavirus still concerning, it got us thinking – can the worst really be over? That led us to research some previous market crashes, and introduced us to the idea of a ‘bull trap’.

We unpack what we learned in this episode. By going through some lessons from history, we see that some previous market crashes have followed a similar pattern – an initial fall, a partial recovery (50% retracement) and then a further fall where the market tests (and often breaks) the previous low.

It is important to note that this doesn’t always happen in market falls. So this is not a foregone conclusion. However, it is in the range of possible outcomes.

With this information in mind, we then talk about how we’re positioning our portfolios. Including one thing that Ren has done that surprised Bryce.

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Equity Mates is a part of the Diamantina Media Network – the home of Australia’s favourite podcasts. For more information, visit http://diamantina.com.au/

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