A popular analyst is warning that the recent strength in risk assets is likely setting the stage for a brutal bull trap.
In a new YouTube strategy session, crypto analyst Nicholas Merten tells his 511,000 subscribers that the stock and crypto markets probably have a little more room to run before they lure in unsuspecting bulls.
Merten says that many anticipate two main outcomes of the Federal Reserve’s first meeting of the year on Wednesday. He says investors are expecting either an immediate drop or an immediate rally based on Fed Chair Jerome Powell’s decision on interest rates.
However, the popular analyst predicts a different scenario.
“I think it’s going to be something that’s going to continue to feel like it’s a bull market, the beginning of the next turn up, and that simply we’re going to continue to see equities and crypto probably go up to those ranges that will convince everyone that it’s the next bull market.
All the traditional means that would get us excited, that would get retail traders buying into the market in order to absorb a lot of that buy-side pressure and liquidity and trap those traders in order to drive prices lower and absorb a lot of the excess liquidity that’s causing inflation in the economy.”
Merten says that such a scenario would be straight from the playbook of the largest players that influence financial markets, whereby price moves just enough to convince the crowds before a reversal takes them out of the game.
“I’m going to tell you guys about a really cold point here that we need to keep in mind, and trust me, this is why Jerome Powell does keep track of equity markets. It’s why the Fed watches what’s happening in financial assets. We need to understand a very important dichotomy here…
We talked about traps for traders where generally speaking asset prices will go up to that point where everyone is convinced… this is the start of the next bull market.
And it just so happens, right at that point, that’s when institutions start to short. They start building positions to the downside and through their weight and through their mass on their order size are able to lead towards dramatic moves to the downside. And vice versa, If they want the market to go up to a large degree, they’ll start making those bets that have that kind of upward pressure.”
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