Small-Caps Broke October 2022 Lows - The S&P 500 And NASDAQ Can Too

Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth. - Arthur Conan Doyle

We having fun yet?

Last week I argued here on Seeking Alpha that we may be in a stock market crash, and on X have been very vocal that the flight-to-safety trade is finally here as we enter a risk-off juncture. I will continue to say this until it sticks – we were never in a “new bull market” as everyone got fooled by idiosyncratic risk driving large-cap averages.

“Why stressed it’s just a 10% correction and now we rally! Seasonality is favorable!”

Stop.

Nothing this year in terms of the vast majority of stocks has followed the pre-election year cycle playbook. To think seasonality must drive markets seemingly ignores what happened in late 2018, and what happened just last year when we had the 5^th worst December in history. While I am a believer in seasonality broadly, it’s just one data point to consider. Multiple other data points must be taken into account to really get a sense of the likelihood of markets recovering, or of a tail event happening.

I really do think people forget that what we are seeing here is usually what you see prior to a big trap door opening up, and right now.

I have continuously argued that a credit event ends the bear market. Treasuries were Phase 1 of it. Phase 2 is corporate credit spreads blowing out, which my intermarket work suggests has a high probability of happening imminently. If you think this can’t happen because of “seasonality,” you’re wrong. Which brings me to the title of the piece.

You really think it’s impossible to break the October lows of last year in the NASDAQ and S&P 500 when small-caps just did?

Multiple signals are saying risk-off early, including Treasuries themselves which finally started acting like the risk-off proxy that has been my source of pain for my own public rules-based strategies. And if you haven’t noticed, Gold had another monster week. That’s not some momentum trade. That’s fear. That’s risk-off. That’s money being worried about some kind of tail event in the short-term happening to stocks.

You really think it’s impossible for the NASDAQ and S&P 500 to go roundtrip and break the October lows just because of stocks like Apple, Nvidia, Amazon, and Tesla? You do realize the valuation metrics are absurd, right? Apple with a P/E of 28, Nvidia with a P/E of 98, Amazon with a P/E of 67. Tesla with a P/E of 66. Why in the world is someone called a “doomer” or a “perma-bear” when everything internally in the market is saying the same thing? How is it that “hope is not a strategy” when a select number of large-cap stocks have had significant P/E expansion as we enter a potential credit crisis?

Maybe I’m wrong here, but I continue to stress short-term conditions are ugly, and no one is prepared for what could be unfolding. The Fed overtightened, complacency remains immense, and everyone was fooled by the AI narrative against severe deterioration beneath the market’s surface.

I will not relent.

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