Need to Know: Beware of the giant ‘bull trap’ lying in wait for stock investors right now

Feeling brave enough to buy the dip? Well, it may be as good a time as any to step back into this helter-skelter stock market.

So say a few pundits, on the heels of what has been a learning experience for young and not-so-spry investors — about how things that go up and up, eventually go down.

Of course, that advice may seem a little crazy, given markets look ready to surrender at least part of yesterday’s gains.

Still, CrackedMarket blogger Jani Ziedins maintains this is the “safest time to buy in several months,” given that the selloff has wiped so much risk off the market. Thank those XIV traders for taking one for the team?

Also in the dip-buying brigade are Bank of America Merrill Lynch strategists, who maintain this ain’t no correction, but merely an unwinding of “very overbought conditions.” Buy the pullback because “fundamentals are still supportive,” but keep a defensive toe in bonds, is their counsel.

And this is just the tip of the advice iceberg, which is sure to exhaust investors in the coming days and weeks.

On to our call of the day, from Humble Student of the Markets’s Cam Hui, who doesn’t agree with any of those go-get-’em calls.

“The stock market is likely to stage a short-term oversold rally over the next few days, but don’t be fooled by the bull trap. Sell the rips. Don’t buy them,” he says.

Hui believes the market is setting up for a “bounce of unknown magnitude over the next few days,” but says that probably won’t last more than a week.

Instead, investors should go shopping for bonds, he says. The blogger offers up the chart below, which, at the top, shows the six-month rate of change of the stock-bond ratio. “In the past, whenever the six-month ROC of the stock/bond ratio hit 20% and turned down, it has represented a good buying opportunity for the 10-year Treasury,” he says.

Humble Student of the Marktes/StockCharts

(Note, the blue vertical lines show when the 10-year yield has fallen, while red lines indicate when it rose. Remember, yields move inversely to price.)

Last word goes to Lee Wild, head of equity strategy at Interactive Investor, who has been comparing the recent selloff with the crashes of August 2015 and early 2016.

“It took several trading sessions played out over weeks to find a bottom, and it’s likely the same will happen here. Only difference this time is that it’s the tune of U.S. economic data, not China’s currency devaluation, that markets are dancing to,” he says.

Market snapshot

As has been the case recently, futures for the Dow

DJIA, +2.33%

 , S&P 500

SPX, +1.74%

 and Nasdaq  

COMP, +2.13%

 are all in the red. Asian stocks opened up pretty strong, but finished with a whimper. In Europe, stocks

SXXP, +0.98%

 are shaping up to snap a 7-day selling spree.

But so far, it’s looking nothing like yesterday’s wild action, which saw 20 different 1% swings in premarket.

The dollar

DXY, +0.19%

is rising, largely against the pound

GBPUSD, -0.3226%

 and euro

EURUSD, -0.2343%

 . Gold

GCH8, -0.22%

is flat, while crude

CLH8, -0.47%

is stabilizing ahead of U.S. inventory data later. The yield on the 10 year Treasury

TMUBMUSD10Y, +0.01%

  is at 2.773%.

See the Market Snapshot column for the latest action.


BTCUSD, +6.78%

 is enjoying a nice little bounce and has shot up through $8,000.

The chart

Where are investors seeing the most risk right now?

This chart from The Wall Street Journal’s Daily Shot shows the RVX/VIX ratio, which measures the relative risk level of small-cap versus large-cap stocks.

The relative risk between the two, known as the premium, is a ratio between RVX and VIX reported as a percentage of VIX.

As the chart shows, that ratio is currently saying the risk is much higher right now for big caps than for small. The Daily Shot calls that “highly unusual.”

The quote
Getty Images

“The military is not Donald Trump’s to use and abuse in this way. Our military is the very best in the world — they are not to be reduced to stagecraft to prop up Donald Trump’s image.” — Major Gen. (retired) Paul Eaton, senior adviser to VoteVets, in a statement responding to reports the Commander in Chief wants the Pentagon to organize a grand military parade in DC.

The buzz


SNAP, +1.52%

 posted better-than-expected growth, and its shares are soaring this morning. But some are warning that the social-media group still isn’t delivering on the hype. Meanwhile, others appear unhappy this morning about an update:


DIS, +1.40%

 is up after delivering a beat in its after-hours results. But the entertainment giant still has a big ESPN-related mess to sort out.

Among other companies that reported late Tuesday, Chipotle

CMG, +1.34%

 is down after results. The burrito chain plans a face-lift for its restaurants. Meanwhile, Gilead

GLD, -1.05%

 is down after its outlook fell short.

Also on the early earnings list are Michael Kors

KORS, +2.17%

 , Hasbro

HAS, +2.85%

 , then Tesla

TSLA, +0.25%

 after the close.

Steve Wynn has stepped down as CEO of Wynn Resorts

WYNN, -1.37%

 after allegations of sexual misconduct.

The House passed yet another stop-gap bill to fund the government for another six weeks and stave off a shutdown.

A handful of Fed speakers might be worth watching today — NY Fed President William Dudley at 8:30 a.m. Eastern, Chicago’s Charles Evans at 11:15 a.m. and SF’s John Williams at 5:20 p.m.

After SpaceX’s successful launch of its massive new Falcon Heavy rocket, the payload — an original-model Tesla Roadster sports car — is now making its way through space, traveling at about 25,300 mph and blasting David Bowie’s “Space Oddity”. Here’s the latest from SpaceX and Tesla CEO Elon Musk:

Random reads
Getty Images

Taiwan’s east coast got rocked by an 6.4-magnitude earthquake that toppled buildings and killed at least seven people.

Go easy on the hot sauce, your life might depend on it.

Armed standoff with giant stuffed tiger. Thankfully, no one was hurt

10,000-year-old Brits had dark skin, reveals Cheddar Man

Beware of Russian hackers known as Fancy Bear

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