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Momentum trading is making an ill-timed comeback, investor Rich Bernstein warns

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This popular strategy will likely burn you right now, Rich Bernstein warns

Institutional Investor Hall of Famer Richard Bernstein sees a troubling market trend.

He warns that the fear of missing out phenomenon is making a comeback despite the coronavirus' damage from Wall Street to Main Street.

"Most investors, I would say, are once again becoming momentum investors," the CEO and CIO of Richard Bernstein Advisors told CNBC's "Trading Nation" on Monday. "We saw that in the fourth quarter where people were very enthusiastic simply because the market was going up — kind of, fundamentals be damned."

The S&P 500Dow and tech-heavy Nasdaq have rallied at least 30% since the March 23 low.

Bernstein finds the bullish activity concerning.

"Momentum is taking over and the technicals are taking over," he said. "That's not usually how bull markets start."

Bernstein, a CNBC contributor who has spent decades on Wall Street, entered 2020 in defensive mode. He saw signs the economy was vulnerable to a full-blown profits recession before the first coronavirus cases emerged.

Now, he believes most investors still aren't fully grasping the economic dangers associated with the virus. According to Bernstein, the bear market is in its early stages, and ignoring fundamentals will burn investors.

"I am actually quite surprised that people aren't more worried about a second wave," said Bernstein. "We're opening up the economy at a point in time when certain states still have an accelerating number of cases. ... How can you be enthusiastic with that backdrop?"

'Uncharted territory'

Bernstein's forecast may be considered pessimistic, but he doesn't regard himself as a bull or a bear. His reason: too much uncertainty to pick a side.

"We're in totally uncharted territory," Bernstein said. "None of us have ever seen a pandemic like this. None of us have ever seen an economic recovery post-pandemic."

Disclaimer

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Momentum trading is making an ill-timed comeback, investor Rich Bernstein warns