Have you ever watched a fireworks show reach that final, breathtaking burst — and suddenly realized the grand finale is already over? That’s exactly how parts of this stock market feel right now. The headlines scream new all-time highs, yet some of the smartest, most battle-scarred traders I follow are quietly moving to the sidelines. And when they start using phrases like “extreme caution,” I listen.
Something subtle but important shifted in late October. The S&P 500 scratched out another record, but the celebration felt forced. It wasn’t the kind of broad, healthy rally that sustains bull markets. It was narrow, tired, and — according to one legendary technician who has been doing this since the 1970s — one of the ugliest new highs in decades.
The Market Is Dropping Hints Most Investors Are Ignoring
Markets rarely ring a bell at the top. Instead, they whisper. They flicker. They give you little clues that only become obvious in the rear-view mirror. Right now, several of those whispers are turning into shouts if you know where to look.
The Deceptive New High Nobody Talked About
On October 29 the S&P 500 touched 6,920 intraday. Champagne emojis flooded social media. But dig one layer deeper and the picture was grim. The advance-decline line — that boring but brutally honest measure of how many stocks are actually participating — was awful. Far more stocks were falling than rising on the very day the index printed a fresh record.
Think of it like throwing a massive party where only ten people are dancing while everyone else heads for the exit. Sure, the music is still playing, but the vibe is off. In my experience, when the major indexes keep climbing on terrible breadth, the rally is living on borrowed time.
“The market gives us ‘hints’ as it’s making a top.”
— Veteran technical strategist
Breadth Has Been Deteriorating for Months
Breadth isn’t sexy. It doesn’t get its own ticker on television. But it’s the market’s heartbeat. And right now that heartbeat is irregular.
- Fewer than 50% of S&P 500 stocks are above their 200-day moving averages — a level that historically marks trouble when seen near all-time highs.
- The equal-weight S&P 500 (RSP) is already more than 10% below its peak while the cap-weighted index keeps flirting with records.
- Small-caps and mid-caps have been in correction territory for months.
This divergence rarely ends well. The big-cap generals keep marching higher while the troops have already started retreating.
Proprietary Surveys Never Turned Bullish
Some of the most respected sentiment and positioning gauges out there never flashed the kind of extreme optimism we normally see at sustainable tops. That might sound counterintuitive — aren’t tops supposed to be euphoric? Sometimes. But sometimes the market tops on complacency instead of ecstasy. And right now complacency feels thick.
Investors aren’t panicked, but they’re not giddy either. They’re just… drifting. Assuming the Fed has their back, assuming AI will keep levitating mega-caps forever, assuming “buy the dip” still works like it did in 2022-2023. That quiet confidence can be just as dangerous as outright mania.
More Sell Signals Than Buy Signals — For Weeks
One widely followed weekly service that rates individual stocks and sectors has issued more downgrades than upgrades for the past month. When the internal ratings start tilting negative while prices are still near highs, it’s another yellow flag.
I’ve watched this exact pattern play out before big corrective phases. The market doesn’t plunge overnight. It grinds higher on fumes while the smart money quietly distributes positions. Then one day the fumes run out.
This Is Not “Just a Normal Correction”
That’s the line you’ll hear on television this week. “Healthy pullback.” “Digesting gains.” “Opportunity to buy quality on sale.” Maybe. But the technicians who have seen every cycle since Nixon was president aren’t buying it.
“We want to once again stress that what is taking place isn’t, as so many others think, just simply a ‘normal correction’ — and, we, therefore, still see the need for extreme caution.”
Those aren’t the words of a perma-bear trying to sell newsletters. Those are the words of someone who has made clients fortunes by respecting risk when others were greedy.
Thanksgiving Week: The Perfect Setup for Volatility
Here’s the kicker: we’re heading into a holiday-shortened week. Volume typically dries up like a lake in July. That thin liquidity is rocket fuel for sudden moves — in either direction.
One big fund deciding to de-risk before the long weekend could trigger stops. One better-than-expected economic number could spark a short-covering rally. Either way, swings get amplified. If you’re sitting on large unrealized gains or heavy concentration in the usual suspects (tech, AI, the Magnificent Whatever), this is not the week to be complacent.
What History Says Happens Next
Since 1950, when the S&P 500 has been within 5% of an all-time high while fewer than 55% of stocks are above their 200-day moving average, the forward 12-month return has been negative more often than not. The average drawdown over the next six months? Around 12%.
Not a crash. Not Armageddon. Just the kind of slow, grinding pain that makes people swear they’ll never buy stocks again — right before the next bull market starts.
Practical Steps You Can Take Right Now
- Raise a little cash — even 10-15% gives you dry powder and psychological breathing room.
- Review your biggest winners — consider trimming positions that have run far beyond fundamentals.
- Check your trailing stops or mental stop levels — holiday weeks love to gap.
- Look at defensive sectors (utilities, consumer staples, healthcare) that have been ignored all year.
- Rebalance — the “set it and forget it” portfolio from March probably looks very different today.
None of this means you have to go to 100% cash and hide under the bed. It just means respecting the message the market is sending instead of arguing with it.
I’ve been through enough cycles to know one truth: the market is always teaching. Sometimes the lesson is “stay fully invested and let winners run.” Sometimes the lesson is “protect what you have because not every dip is buyable.”
Right now, the market is leaning hard into the second lesson.
Enjoy Thanksgiving. Eat too much turkey. Watch football. But maybe — just maybe — take ten minutes this week to double-check your risk settings. Because when a 50-year market veteran says “extreme caution,” the cost of ignoring him is usually a lot higher than the cost of listening.
The fireworks might still have a few sparks left. Or the show might already be over. Either way, keeping your eyes open beats being blinded by the lights.
