Throughout 2024, markets issued warning after warning—via SKEW, extreme sentiment, the VIX, and especially rapidly deteriorating breadth, surging net new lows, and the growing failure of stocks to hold above key moving averages like the 20 -, 50 -, and 200-day. Leading sectors—such as Transportation, Small Caps, and even the NASDAQ Composite—had already declined for many months before last month’s break.
Our stance remained firm: while we could not predict when this dangerous advance by the weakest index, SPX, would end, we knew how it would end—and we were prepared and positioned for that decline in the form of a Primary Bear Market.
That inevitable Bear Market is now in full force:
A Market Built on Sand
By late Q1, the gap between market perception and market reality had grown unsustainably wide. The SPX was held aloft by a shrinking handful of mega-cap names, while the broader market was already deteriorating beneath the surface. Participation metrics worsened week by week. NYSE net advances turned persistently negative, and the number of stocks trading below their 200-day averages quietly surged to levels rarely seen outside of major tops.
Breadth was not just weak—it was collapsing. Indicators typically associated with the later stages of a bull cycle flashed red with growing intensity. Despite the apparent calm on the surface, beneath it was the kind of divergence that historically precedes prolonged declines.
The Cracks Become a Collapse
By March, the divergence gave way to damage. The SPX, long the last index standing, finally succumbed. Once the index failed to hold its 50-day and then its 200-day moving averages, the technical backdrop shifted decisively. The failed retests and accelerating downside volume confirmed what had already been apparent to those watching the internals: the market’s engine had long since stalled; only now had the chassis begun to fall apart.
Selling pressure broadened sharply. The “Magnificent Seven”—which had propped up the index and obscured the bear beneath—rolled over one by one. As their leadership faltered, so did investor confidence.
Sentiment Shifts and the Absence of Bids
Unlike the panics of 2020 or even 2022, the 2024 decline has been defined by its grinding relentlessness. There was no capitulation spike in the VIX to mark a short-term bottom. Instead, the volatility index crept upward, marking a slow but persistent shift in risk appetite. Put-call ratios surged while cash allocations rose, yet the selling continued.
The absence of buyers has been as notable as the presence of sellers. Each rally attempt has failed to recover key moving averages, with lower highs confirming the downtrend. Hope-driven rebounds have been met with renewed distribution as institutions rotate out of equities and into defensive allocations.
From Warnings to Strategy
Our positioning throughout this period was never dependent on timing the exact turn. It was based on understanding how extended and fragile the advance had become—and recognizing that markets built on narrow leadership and weak breadth do not correct gently.
We approached this year’s setup with historical context in mind, drawing on the final phases of past bull cycles—in 2000, 2007, and 2021–22. Each of those periods featured similar divergences, euphoric sentiment, and investors’ refusal to believe the top was in. This year has echoed those dynamics with uncanny precision.
The Road Ahead
Now that the Bear Market is confirmed and gaining momentum, the task shifts from anticipation to navigation. As in past cycles, the most significant risk comes from losses and clinging to outdated assumptions. The “safe” names are no longer safe. Passive investing has turned from savior to saboteur. The technicals, breadth, and sentiment indicators must now serve as our map through the next phase of this decline.
This market is no longer about squeezing the last gains from a tired rally. It’s about protecting capital, exploiting downside opportunities, and respecting the structural weakness that had defined 2024 from the start.
The storm is no longer approaching—it’s here. We prepared for this. And now we are riding that inevitable decline aligned with the new Bear Market.
We’ll review the overnight futures activity at 9:15 on Monday morning.
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