Dear Reader,
The S&P 500 hit another all-time high this week.
If you’ve logged into your brokerage account lately, there’s a good chance it looks better than it has in years.
On the other hand, I’ve been warning you to take it easy, not make crazy bets, pull in your sails a bit.
If you follow our services, you know we’ve taken profits and been very selective about what we add to our portfolios — only the best of the best make it through.
And I saw a number today that caught my attention…
Something that tells a completely different story than what the market averages are showing you.
Nearly Half the Market Has Already Broken Down
Here’s a number Wall Street doesn’t want you to focus on:
Only 53% of S&P 500 stocks are trading above their 200-day moving average right now.
In plain English? That means 47% of stocks have already broken below the line that professional money managers use to define a long-term uptrend.
Nearly half the stocks in the market have already cracked — while the index itself sits at an all-time high.
How is that possible?
Because the S&P 500 is a weighted average.
A handful of mega-cap stocks — the same ones that powered the AI rally — are dragging the index higher while the rest of the market quietly falls apart underneath.
Goldman Sachs flagged it last week.
They found that the median stock in the S&P 500 is 13% below its own record high. That’s the widest gap in 25 years.
Bank of America’s data is even more striking…
In April, only 23% of S&P 500 members outperformed the index.
That’s the fourth-lowest monthly reading in their database going back to 1986.
The last few times breadth deteriorated this badly while the index was making new highs? 2000 and 2007.
I don’t say that to scare you. I say it because I’ve seen this movie before.
The $86 Billion Time Bomb You’ve Never Heard Of
But here’s where it gets really dangerous.
There’s a category of Wall Street fund called a CTA — a Commodity Trading Advisor.
These are systematic, computer-driven funds that follow trends.
They don’t think. They don’t analyze earnings. They follow price.
When stocks go up, they buy. When stocks go down, they sell.
Automatically. No human decision involved.
Right now, their exposure to U.S. stocks sits in the 88th percentile of its historical range.
They are loaded to the gills.
And Bank of America estimates that in a down-market scenario, these funds could be forced to dump up to $86 billion in stocks within a single week.
Not because a portfolio manager got nervous.
Not because earnings disappointed.
Simply because prices crossed a line.
Goldman Sachs has identified the trigger zone: roughly S&P 5800 to 6000.
If prices fall to that range, the machines start selling — which pushes prices lower — which triggers more automatic selling.
It’s a cascade. And it can happen fast.
The last time CTA positioning was this extreme and breadth was this weak, it preceded a 19% drawdown.
Six Warning Signals Are Now Flashing at Once
In my 33 years on Wall Street, I’ve learned that one warning signal is a yellow light. Two is a concern. Three or more means you better pay attention.
Right now, I count six.
One: Market breadth is collapsing. 47% of stocks already broken. Narrowest leadership in 25 years.
Two: The market is overbought. RSI at 75. Bloomberg’s own sentiment model just moved to “manic” territory.
Three: $86 billion in forced systematic selling is loaded and waiting for a trigger.
Four: It’s a midterm election year — historically the worst seasonal stretch for stocks.
Five: Oil is at $104 a barrel. The Strait of Hormuz is still effectively closed. Energy costs are feeding directly into inflation, and there’s no deal in sight.
Six: The latest CPI reading is running hot. The Federal Reserve is paralyzed — four dissenting votes at the last meeting, the most since 1992.
Each of these signals alone would be concerning.
Together, they form the kind of convergence I’ve only seen a few times in my career.
And every time I’ve seen it, what followed wasn’t pretty.
Why I’m Telling You This Now
People doubted me in 2007 when I predicted the Great Recession a year before it happened.
The market was flying. Housing was booming. Everybody was making money.
Then the S&P crashed 47%.
The people who listened to my warning had time to prepare. The people who didn’t were devastated.
I see the same kind of setup forming right now. The surface looks beautiful. The foundation is cracking.
I don’t believe in crying wolf. I’ve spent three decades building a reputation on getting the big calls right — and I wouldn’t put that reputation on the line if I wasn’t deeply concerned about what’s ahead.
“The Buck Stops Here,”
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Written by Dylan Jovine