The bear market rally which began on October 13, 2022 with an intraday low of 3,492 topped on March 28, 2024 with an intrday high of 5,265. From top to bottom the S&P rallied about 50%.
It has been well said that “bottoms are events while tops are processes”. In this blog, I will review the topping process that has been taking place in the S&P since late July 2023.
The first thing to understand is that the bear market rally was driven by The Magnificent 7 which accounted for about half of the S&P’s gain from top to bottom over the course of the entire bull market. I first made this analysis most comprehensively on August 24, 2023 in “The Bear Market Rally Is Over”. As you can see in the chart at the top of this blog, the S&P corrected from 4,600 at the end of July 2023 to 4,100 at the end of October 2023. One Mag 7 stock – Tesla (TSLA) – itself topped out in July 2023. I thought “the” top was in at the time but in retrospect it was only the first step in the topping process.
The next step in the topping process was when Apple (AAPL) – the most important stock in the market for most of the bear market rally – topped out around $200 in December 2023.
In the new year, Nvidia (NVDA) and Facebook (META) took over the baton of leadership from AAPL. The two stocks were themselves responsible for 37.5% of the S&P’s gain through the first two months of the year. The rest of the market also started to participate in the rally from November 2023 through the top on March 28, 2024 as can be seen the chart of the NYSE Advance-Decline Line above. At the time, this increased participation looked like a healthy broadening out of the market. But in fact it was the last leg of the bear market rally as investors pushed up everything in the wake of expectations that the Fed would cut interest rates significantly in 2024.
The next step in the topping process was the nasty intraday reversal in Nvidia (NVDA) on Friday March 8, 2024. NVDA reached a high around $975 at around 10:30am EST and then reversed hard to the downside over the course of the rest of the day (“NVDA Led Market Reversal Likely Marks At Least Short Term Top”, Top Gun Financial, Sunday March 10, 2024). That was indeed the high of the bear market rally for NVDA. At this point, TSLA AAPL and NVDA had all topped out one by one.
The final nail in the coffin occurred when Facebook (META) reported 1Q24 earnings earlier this afternoon (Wednesday April 24, 2024). With NVDA giving up leadership after March 8, META had been holding up the market. But META has been smashed in respone to earnings with the stock closing the after hours down 15% (“META Reports An Excellent Quarter – And The Stock Is -12%”, Top Gun Financial, April 24, 2024). The S&P and NASDAQ Futures are currently down 60 basis points and 110 basis points, respectively. In other words, the market is set to gap down at the open on Thursday.
While Microsoft (MSFT) and Google (GOOG/GOOGL) report 1Q24 earnings Thursday afternoon – and Amazon (AMZN) and Apple (AAPL) next week – they will not be able to save the market.
After a vicious correction over the previous 3 1/2 weeks, the market rallied hard on Monday and Tuesday this week. Most technicians took this as the end of the correction in an ongoing bull market. However, personally I suspected it was a huge “bull trap” and META’s coming nosedive suggests that indeed it was. A decisive break below 4950 will confirm that – and it’s coming shortly.
The market in fact topped out four weeks ago tomorrow (Thursday March 28) – the exact day I wrote “The Market Will Soon Hit An Air Pocket And Drop 20% In A Matter Of Months”.
I hope you found this historical review of the topping process of the bear market rally of October 2022 through March 2024 helpful. It has been a historic 18-month headfake – but it’s all over now. As more and more investors come to realize this in the coming days, weeks and months, selling will accelerate to the downside. It’s all over but the crying.