The recent surge in stocks has given investors hope—but beneath the surface, this rally shows all the signs of a classic bear market trap.
What triggered the bounce? Not strong economic data, but a political shift. Former President Trump’s softened tone on Federal Reserve Chair Jerome Powell and Chinese tariffs offered temporary relief to markets. However, relief does not equal recovery. These developments are reactionary, not driven by lasting improvements in fundamentals.
The evidence lies in the volume profile. Despite the Nasdaq 100 jumping over 14% since April 21, trading volume remains well below average. That’s a red flag. In healthy bull markets, rallies are backed by strong institutional buying. Here, we’re seeing light participation—just enough to drive prices higher, but not enough to sustain the move.
Technical resistance also looms large. The Nasdaq 100 is running into a double ceiling at the $475–$480 range, where the declining 50-day moving average and former support levels intersect. In bear markets, these levels typically act as strong resistance.
Meanwhile, the CBOE Volatility Index (VIX)—Wall Street’s fear gauge—refuses to fully retreat. Though it briefly dipped below 25 last week, that drop lagged the 6% rally in stocks. This disconnect signals that options traders are hedging against future volatility, not betting on a lasting uptrend.
This week, the spotlight is on Palantir (PLTR), whose earnings report could sway sentiment. Known for its connection to AI services, Palantir’s performance could either reinforce bullish momentum or slam the brakes on the rally. A miss would confirm fears of an overvalued AI sector and likely accelerate selling.
The second half of the week brings earnings from consumer and discretionary sectors. With early signs of weakening demand—like declining West Coast port traffic—consumer-focused stocks may issue cautious outlooks, further weighing on sentiment.
Bottom Line: This rally feels encouraging—but so do all bear market bounces. Until volume surges, resistance levels break, and the Fed eases meaningfully, the market remains fragile. Keep a close eye on Palantir’s results and key technical levels—this rally could turn on a dime.