Governments have not been able to stop recessions from happening by pouring money on them, I doubt that this time it is different.

This is not the first sharp decline in a recession followed by a rally of about ½ the original drop.

In fact, that is rather normal from an historical standpoint. So, my base case has to continue to be that this recessionary market decline is not over, and that we have more than a few weeks to go before we reach the ultimate bottom, and many more weeks before we crawl out from the recession.

There is an alternative view - that the massive government injection of money in the banking system, buying of loans of poor credit risk companies, lending to small businesses, helicopter money to millions of Americans, and higher unemployment checks for longer will blunt the trauma enough that the economy will bounce back and the stock market will resume its previous rising trend. An article in Bloomberg by Katherine Greifeld "Nothing is Certain but Bailouts: How Stimulus Works in a Vacuum" notes that when the future is impossible to understand, as it is now, but the one "certainty" is that the government is intent on doing whatever it thinks is necessary, then that our minds fix on that one certainty. She adds that we humans and the computer programs that do the trading have been trained to invest when the government floods money into the system. So, we see this as a dip to be bought. End of story.

I haven't yet found an example where massive government intervention actually stopped a recession. Past interventions have helped disadvantaged companies and families to survive through and to crawl out of recessions. I'll dig into this "don't fight the Fed" viewpoint in another piece, because it is possible that the impact of central bank intervention that we have seen over the past decade has changed the balance of economic factors to where all that we have learned in economics and markets for the past 100 years is irrelevant.

I don't relish a continued period of market upset, and the fear and worry that comes with it, but if this was the end of the downturn, then "this time it would be different", and that has not been a successful belief in most if not all downturns associated with recessions. Oh, of course, the first assumption we have to make is that we are in a recession and that this is not a hiccup in the middle of a growing economic expansion. I would hope that by now the unprecedented unemployment and the crash of other economic and earnings measures make that pretty clear that we are not in an expansion - especially as much of the world has been on a downward economic slope for the last two years with only the US stock market continuing to move upward.

This doesn't mean that you can't trade the rally, or the subsequent decline; it just means that it may be a bit early to be picking your positions for long-term holds at these prices.

Classic Bull Trap:

I showed this picture below on March 10th, (a mere six weeks ago) to colleagues after I found it in a post that introduced "The Bull Trap". The point of the graph was to show that it is common for the market to drop from a top and then rally again as the investor-herd believes that the bottom was in and we should be buying that dip because the return of "normal" is just months away "as soon as (fill in the blank)" happens. It is common for retail investors to have poured money into the market as it ran up before the crash with fear of missing out, and then to see the dip as an opportunity to get in with the big guys. But the true end of recession financial markets have coincided with large losses, exhaustion, fear, capitulation, despair, and retail investors thinking that they will never, ever invest in stocks again after they sold out at the bottom. This is all about investor psychology and nothing about the specifics of the outside environment (was it tech, housing, virus or other that started it).

(Source: ZeroHedge)

Here is the S&P 500 chart for the past three years. You can see the first sell-off in 2018.

(Source: Finviz)

First sell off Dec 18, New Paradigm peak Feb 20, Bull Trap Mar/Apr 20

Do you hear "Capitulation" or "despair" out there in stock land? I didn't think so. No, four weeks ago it was "buy this dip"; now it is arguing about which stocks and sectors are the best for riding this wave back to "normal", and that the stock market is already looking beyond what is a short-term disruption.

We are still firmly in the Denial stage - Denial that a recession is now underway, Denial that the earnings numbers coming out will be incredibly bad, even Denial that the loss of wages of the one quarter of the working public that has just applied for unemployment compensation in the last three weeks with more to come will not cause serious economic and profit losses. Denial that white collar workers will lose their jobs, too. Denial that the rent that will not be paid or the mortgages, auto loans, credit cards, and business loans not paid are going to impact the economy. I could list more, but you get the point.

Oh, did I mention that never has there been a large drop in the stock market during a recession where the market didn't "return to the scene of the crime" by testing that low again in a few months. Or denial that the GAAP P/E of the market at the peak - of 24 - was as high as it has been only except at other market peaks. Or that even now analysts are expecting to see earnings higher in six months than in the peak earnings of 2019. This is not despair.

Market declines from peaks in recessions have similar tracks. Not a "V" down crash and up explosion, but a series of dips and rises like an old fashion roller coaster until the buyers run out of momentum.

From the market peak in October 2007 there were four cycles of dips and rises before "The Big One" in September 2008.

But, "The Big One' in September 2008 - "OUCH" - was NOT the bottom - that happened six months later in March 2009 after two more rise and dip cycles.

Source: Stockcharts

And, the 2000 - 2003 period likewise shows multiple "crash" and "bounce" patterns before a final bottom three years after the peak (not three weeks . . . just saying).

We've been told that this time it is different because the virus was an external event and it is our reaction to it that caused the crash. In the chart above of 2000-2003 you will note a large and very quick drop in September of 2001 tanking the market to a loss of 39%... This happened just after 9-11, which was an external event that caused two tall buildings to fall and over 3,000 people to die. The stock market reacted in a dramatic fashion. Different specifics but same market behavior.

Net: my Base Case is still that the current rally is a relief rally in a continuing bear market associated with a recession.

Core economic conditions were deteriorating throughout 2019; the run-up of the market from November to February was a classic blow-off top of irrational exuberance that put the market P/E at 24 on true GAAP earnings (vs. historical average in the mid-teens). The virus arrival was a trigger of fear. Electronic trading, program trading, free retail trading and use of Index funds and 24x7 financial news enabled a faster crash than we have seen before. I would happily be proven wrong and find the markets holding their position, and for some unknown factor to emerge to stimulate the global population to produce more, spend more and risk more than they did in January. I'm not holding my breath until it shows up.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.