No Matter How Bad Things Appear, the S&P 500 Isn't Going Down. Here's Why
I see so many headlines calling for bearish stock market action, but it simply isn't going to happen, at least not based on current market rotation.
Do you believe that market tops are totally random? I absolutely don't. I believe that the big Wall Street firms know exactly when market tops are in, and they plan for it. If you don't believe me, then follow along as I check out the sector rotation at the last three major market tops.
January 28, 2026. Earlier this year, the S&P 500 ($SPX) hit 7,000 for the first time, but that turned out to be the last high for this benchmark until 10 weeks later in mid-April. Sector rotation saw money moving toward the defensive sectors in anticipation. The following chart shows the January high.
While everything looked fine on the chart, money was rotating behind the scenes into more defensive areas.
At the very top, Technology (XLK) was heading into the lagging quadrant, while the four defensive sectors all were showing improvement. Wall Street was clearly prepping for something other than new highs.
February 19, 2025. One year earlier, the rotation was even more evident. Before we look at that rotation, check out the S&P 500 high and subsequent tumble below.
Did we see major sector rotation prior to that top? Well, check this out and you be the judge.
Technology was strengthening, but three of the four defensive sectors were already well into the leading quadrant. Did someone know that we were about to turn lower? Yes. The big Wall Street firms knew, which is why they were pouring money into defensive areas.
January 3, 2022. This was the biggie. Just before a 28% decline in the S&P 500 over 9 1/2 months, money shifted significantly towards defensive sectors. But before that, take a look at the S&P 500 top just before this decline.
Once again, just prior to this major top, there was a big change in the areas that were being bought. The RRG helps you visualize how significantly money was moving.
It's almost criminal. I can tell you one thing that didn't happen on any of these three occasions. No one from the big Wall Street firms was on CNBC, pounding the table to buy defensive sectors, because a cyclical bear market was approaching. They only tell you that after the selling has happened and they're comfortably reallocated into more defensive positions.
September 25, 2026. Now let's fast forward to where we are right now. A lot of folks believe the stock market is about to tumble. I say NO WAY. The S&P 500 remains within 1% of its all-time high, but check out the current RRG and how money continues to rotate OUT of defensive sectors.
We're seeing no Wall Street rotation into defensive sectors. If Wall Street isn't prepping for a major decline, then neither am I.
So What Signal of a Major Market Top Could We Watch For?
Well, rotation into defensive sectors is certainly one signal that's worth keeping an eye on. However, I've developed a proprietary signal that I believe is even more reliable than sector rotation. It has triggered before every significant market decline this century, with one exception — the pandemic. Quite honestly, though, no one could have predicted a once-in-a-century pandemic, certainly not market signals.
On Saturday, October 3rd, at 10:00 am ET, I'm hosting a FREE LiveStream event, "The Warning Signal That Appears Before Major Market Tops," and everyone is invited. Simply CLICK HERE to register and save your seat!
Be sure to sign up, even if you can't make the event, as we'll send a copy of the recording to all that register.
Happy trading!
Tom
