This Bear Market Signal Has an 11-for-11 Track Record

BY KEITH KAPLAN
CEO, TRADESMITH

At 10:55 p.m. on April 14, 1912, a radio operator aboard the SS Californian tapped out a warning to the RMS Titanic.

The Californian, just 20 miles away, was stopped for the night, surrounded by ice.

The chief radio operator on the Titanic, Jack Phillips, had already passed several ice warnings to the bridge that day. But by late evening he was buried under a backlog of passenger messages.

One first-class traveler wanted to tell friends about an upcoming poker game in Los Angeles. Another needed to reach his broker in New York.

So, Phillips sent back a signal to stop transmitting and went back to sending the passenger messages. Thirty minutes later, the operator aboard the Californian switched off his set and went to bed.

At 11:40 p.m., the Titanic struck an iceberg. The hull buckled along 300 feet of her starboard side, flooding five watertight compartments.

The “unsinkable” ship was designed to stay afloat with four compartments flooded. But not five. At 2:20 a.m. – 2 hours and 40 minutes after impact – she sank beneath the surface.

Last December, in these pages, I sent out a different kind of warning.

Along with Wall Street legend and fellow quant investor Marc Chaikin, I warned that 2026 would be a “tipping point year” for the stock market.

And for the first time since becoming TradeSmith CEO, I urged you to set aside our Long-Term Health stops and rely on our more sensitive Short-Term Health stops instead.

There are still long-term reasons to be bullish on stocks – prime among them the AI boom. If the war with Iran ends soon, it could once again become investors’ primary focus.

But we can’t ignore what the market data is telling us.

The tech-filled Nasdaq 100 entered a Short-Term Health Red Zone on Feb. 27. Since that signal, it’s fallen as much as 8%… and is now down 8% from its October peak.

And judging by the deterioration we’re seeing in the other major U.S. indexes, it’s part of a wider bearish trend.

So today, I’ll show you what our indicators are telling us right now – and why the picture they’re painting is one every investor needs to see.

I’ll also introduce you to a tool I’ve never written about in these pages before. It’s a bear market signal with an 11-for-11 track record going back nearly 40 years.

It’s never missed a major crash. And right now, it’s watching for what could be Warning No. 12.

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The Traffic Lights Are Turning Red

The best way I know to take the temperature of the market is to look at our Short-Term and Long-Term Health indicators.

Think of them as a traffic light system. Green means a bullish trend is intact, and it’s a safe buy. Yellow means caution – the trend is weakening, and it’s worth watching closely. Red means the trend has broken down, and it’s time to sell.

As I mentioned, the Nasdaq 100 – which led the tech-driven bull market higher – has been in a Red Zone for more than a month.

And the S&P 500, a broad measure of the U.S. market, has joined it in the Short-Term Red Zone. So has the Dow, which tracks 30 of America’s best-known blue chips.

Critically, the Dow has also entered a Long-Term Health Red Zone, meaning the deterioration isn’t just a short-term wobble. It’s showing up in the longer-term trend.

In short, our market health signals are breaking down across the board.

And that means caution is the name of the game right now. Despite the fundamental reasons to be bullish on stocks, we have to respect these market health signals.

A Dilemma Every Investor Faces Today

But here’s the problem with jumping out of the market at the first sign of trouble. The biggest gains in a bull market often come in the final innings – right before the turn.

Sell too early, and you leave serious money on the table. Stay in too long, and you give it all back.

The problem isn’t getting out. It’s staying in long enough to capture the gains while being nimble enough to exit before the damage hits.

This is what hedge fund legend Paul Tudor Jones was getting at when he compared today’s market with the dot-com bubble that blew up in the late 1990s. As he told CNBC last October…

If you don’t play it, you’re missing out on the juice. But if you do play it, you have to have really happy feet, because there will be a really, really bad end to it.

It’s a real dilemma: Stay invested, and you risk riding the market all the way down when it turns. Get out early, and you miss the gains that are still on the table.

At TradeSmith, we’ve spent years trying to resolve this dilemma. And I believe we’ve cracked it.

My team and I have created a signal I’ve never shared before – one that has flagged every major market crash and every major market recovery since 1987. Eleven for eleven. No misses.

And right now, it’s watching for Warning No. 12.

These Bearish Patterns Are Showing Up Again

The patterns it detected before every previous crash – the same breakdown signals that preceded Black Monday, 2008, and Covid – are starting to show up again.

And I want to make sure you’re prepared.

If you followed my advice at the end of last year, you’d have done three things:

An audit to make sure you’re still happy owning all the stocks in your portfolio.
Rebalanced – meaning you’ll have taken some profits on the big winners in your portfolio.
Committed to a data-driven exit strategy, not a hunch or gutfeel-based decision.

But I also don’t want you missing out on any more “juice” if the bullish momentum that’s been building over the last couple days keeps building.

To find out what this signal is, how it works, and what it’s telling us about the market right now – I’d like to invite you to watch the presentation my team and I have put together.

I’ll walk you through the full story behind this signal, what exactly Warning No. 12 is watching for, and the tools we’ve built to help you play both offense and defense in the weeks and months ahead.

This Bear Market Signal Has an 11-for-11 Track Record