The bullish trap in the US stock market
Institutions are worried about being unable to sell their stocks!
The bullish trap in the US stock market is obvious. Against the backdrop of the intensification of the Sino-US trade war in April 2025, the sharp fluctuations in the US stock market have sparked widespread discussions about the “bullish trap”.
Based on the current market dynamics and public information, the recent rebound in the US stock market shows obvious short-term bullish trap characteristics, and other markets can also refer to this.
On April 9, the US government announced a 90-day suspension of additional tariffs on 75 countries, triggering an epic rebound in the S&P 500 index with a single-day surge of 9.5% and the Nasdaq index soaring by 12.16%. However, China was excluded from the exemption list, and tariffs on some goods were even raised to 125%, indicating that the policy has not fundamentally eased.
This “policy pulse” has led to an overreaction of the market to short-term news, but lacks sustainable fundamental support. For instance, the rebound in technology stocks (such as Apple’s 15% increase) relies on expectations of tariff exemptions, but new tariffs on industries like semiconductors may be implemented in 1-2 months, and the short-term benefits may quickly reverse.
Currently, both the US and Hong Kong stock markets are experiencing a divergence where retail investors are buying while institutional investors are reducing their holdings. Retail investors have been net buyers in large volumes, but institutional investors have been selling off their positions significantly during the same period. This divergence indicates that retail investor sentiment is driving a short-term rebound, while institutions are taking the opportunity to exit.
For instance, despite JPMorgan Chase’s CEO warning of an 80% risk of economic recession, retail investors are still flocking to high-risk tech stocks like Tesla, creating a “herd mentality”. In addition, one should also be cautious of the false prosperity driven by short covering. On April 9th, the US stock market soared, causing short sellers to lose 75 billion US dollars in a single day. However, short positions have not been fully closed, and the market still faces subsequent selling pressure.
Goldman Sachs pointed out that hedge funds have reduced their long positions and increased hedging, indicating that institutions lack confidence in the sustainability of the rebound. The S&P 500 rebounded from its low point, with a huge long bullish candle followed by subsequent volume contraction, suggesting insufficient capital follow-up. Tesla’s target price was lowered to $190 by UBS due to the risk of China’s countermeasures, but retail investors still chased its 22% single-day increase, resulting in a disconnect between sentiment and fundamentals.
Gold is in high demand as Goldman Sachs raised its target price to $3,700 per ounce, but if the Federal Reserve delays cutting interest rates, the rise in real interest rates may suppress the gold price. The rise in defensive sectors such as utilities reflects the demand for safe-haven assets, which is in contradiction to the rebound in technology stocks, indicating a confused market direction.
Currently, the US stock market is showing a bullish chain of “policy stimulus → short covering → retail investors chasing gains → institutional investors pulling out”. The short-term rebound is unlikely to reverse the long-term risks. Investors should be wary of the bullish risks under the policy-driven market. Especially when the market has not yet moved beyond the “news-driven” stage, blindly chasing gains may lead to a repeat of the sharp drop after the “seven-minute surge” on April 9.
When the market enters a bear market, institutions holding a large amount of stocks will be worried about being unable to sell their stocks. If they sell a large amount in the short term, it will lead to a price crash and cause further losses. Therefore, they will definitely use the information to carry out short-term price hikes to lure retail investors to enter the market and take over their stocks. However, retail investors, believing in the saying “fortune lies in taking risks”, or fearing that they have missed the opportunity to buy at the bottom, blindly enter the market and may gain a little at first. But they will be repeatedly trapped by the bear market until they are forced to cut their losses and exit.
