Nope. Now is NOT a Good Time to Invest. According to This Chart.

 16/4/2025.  Last week, just minutes *before* the announcement of the 90-day suspension on tariffs, there was a huge spike in call options trading… insider trading?  Some say.  Some might also say that traders were responding to Trump’s post “Great time to buy”.  Some others might say that Trump’s post gives perfect cover - plausible deniability – for those trading in the know.

Volatility = Emotion

Extreme volatility happens because of extreme emotion – whether fear of loss, or fear of missing out (which is at least as strong as greed).  Day traders love this kind of stuff, because they stare at the screens all day and try to capitalise on snippets of news.  On the other hand, they can make multiple trades a day, and if they win on 5 and lose on 4, that’s a good day.   

If we make an investment decision based on a single day of news, it means we must be prepared to reverse it the next day (eg stop loss) if that next days news is not great.   Much too stressful for me.

Signal-to-Noise Ratio (SNR)

In communications theory, SNR is an indication of how clear a wanted signal is, above the noise of the channel.  In stock-market context, volatility increases noise, making the signal more difficult to discern.  The signal is what we really want to receive – where the S&P 500 really “should” be trading.  The drivers are corporate earnings, and price-to-earnings ratio.  Earnings could well decline in 2025, and significantly in face of recession.  As far as PE, current levels are spicy compared to historic averages.   

There is a good chance that tariff volatility is temporarily masking a distress signal.

Counter-Trend Rallies (Dead Cat Bounces, Bear Market Rallies, etc.)

Sharp upwards movements within a longer-term decline happen regularly.  History suggests caution – they can trick investors into premature buying decisions.  A famous example is the Wall Street crash – the Dow bounced almost 50% before heading back into decline.  (Yes, it was some time ago, but market psychology has not evolved in the blip of less than 100 years.)  

In the 2000/2001 dot-com bust there were several counter-trend rallies, and similarly during the 2008/9 global financial crisis.

(Click any image to enlarge.)

About Those Bounces

Have we now seen the start of a trend reversal, or just a counter-trend rally?  Your guess is as good as mine.  But since we’re not day-traders, we might want to consider some other factors about potential ‘dead cat bounces’…

1. Counter-trend rallies of 10% and more are very common, and can last 3-4 weeks on average

2. It’s not unusual for the rally to retrace only half the recent decline – leading to a ‘lower high’.   More below.

3. Investors inherent optimism for a recovery drives a bear-market rally, and when it turns sour, their disappointment is partly responsible for driving to new lows.

4. Trying to predict the ‘exact’ bottom of a bear market is extremely difficult.  Strategically, it can be better to extra allow time to be sure, rather than acting quickly and be wrong.

Lower-Highs and Lower-Lows

A characteristic of bear market rallies is that they don’t break the simplest and easiest trend-spot:

An upward trend often looks like this

But a downward trend typically looks like this

The SP500 daily chart is unconvincing.  

Daily charts are pretty useless for long-term investors.  We can smooth the signal a bit, to rise it from the noise, by looking at less granular data.  For example, monthly data filters out short term movements and gives less chance of false positives.

Below is monthly chart of the S&P 500, with some technical indicators.

The great thing about the human brain is that it is trained by evolution to recognise patterns.

What do you see?

This is not financial advice.  It’s pretty cool stuff though.