Analysts: Dow Jones Rally Is a Big Bull Trap; Get Out Before Selling Resumes

The Dow Jones just printed its biggest one-day point gain in history. The index rallied by a massive 1,294 points on Monday for a strong 5.1% gain. In terms of percentage gains, this was its best in over a decade.

The surge comes as the markets price in the possibility of a big rate cut this month. Even if the Fed brings out the heavy guns, history tells us that big gains often occur in a bear market. Widely-followed analysts also believe that this rally is your chance to get out of the stock market before the bloodbath resumes.

For the Dow to officially trade in bear territory it must plunge all the way down to 23,600. Even though the index is over 3,000 points above that number, history is not on the side of the bulls.

Investor’s Business Daily revealed that strong one-day rallies are often big bull traps as “bold moves are seldom sustained.” The site put together the biggest one-day wonders in the Dow’s history and discovered that big moves up are often followed by a more vicious move down:

March 1933 – the Dow gained 15.34% only to slide by 11.5% later. October 1931 – the Dow surged by 14.87% then plunged by 41%. October 1929 – the Dow rose by 12.34% then plummeted by 29.5%. September 1932 – the Dow spiked by 11.37% only to nosedive by 34% after. October 2008 – the Dow skyrocketed by 10.88% then lost 33% in four months. October 1987 – the Dow advanced by 10.15% and consolidated for the next six months.

In short, history tells us that big surges are not opportunities to buy on dips. Instead, they offer investors the opening to sell on strength before the next round of selling resumes.

Analysts: Dow Jones Rally Is a Big Bull Trap; Get Out Before Selling Resumes, CCN, Mar 3