Portrait Of A Sick Market | Milton Berg On How The Stock Market’s Exhaustive Rally Is Reminiscent of 2000, 1968, and 1929

Episode Summary

Executive Summary: Milton Berg argued the market may be at or near a major top despite strong momentum, new highs, and many bullish buy signals. He said breadth, sentiment, rates, gaps, equal-weight divergences, and cycle dates all resemble prior bull-market peaks, and that the rally has become speculative and commodity-like. He remains only partially short, awaiting confirmation, while warning a recession and potentially much larger downside could follow.

Main Topics: Why Berg turned bearish despite prior bullish calls (Priority: 5/5): Berg explained that many of his prior buy signals from 2023 achieved their median or minimum targets, reducing their bullish value. He now sees enough evidence to consider the February 2024 high potentially a final bull-market peak, even though some bullish objectives remain unmet. Technical evidence of a possible market top (Priority: 5/5): He cited breadth thrusts, put/call behavior, upside gaps, extreme momentum, and the 9-weeks-up trend as indicators typically associated with late-stage market peaks rather than healthy continuation. Inflation-adjusted and cross-asset perspective (Priority: 4/5): Berg argued the S&P 500 is not truly at a new high in real terms, and that the inflation-adjusted peak may already have occurred in 2021/2022. He tied this to a longer-term secular bear market possibility. Divergences in banks, Russell 2000, and equal-weight indices (Priority: 5/5): He emphasized that banks and small caps made bear-market lows later than the S&P 500, and that equal-weight versions of indices are lagging or already peaked, which he views as a classic late-cycle divergence. Exhaustion, FOMO, and commodity-like behavior (Priority: 5/5): Berg said the rally now resembles commodities more than normal equities: sharp gaps, low-volume breakouts, and euphoric speculative buying in quality names like NVIDIA and Supermicro suggest exhaustion rather than healthy accumulation. Cycle dates and timing risk (Priority: 4/5): He highlighted a cycle window beginning around February 24 and extending to May 7, arguing that major highs often align with these dates when the market is emotionally stretched. Portfolio positioning and stock examples (Priority: 4/5): Berg discussed his long-only portfolio and a separate short basket of extended stocks. He described Super Micro Computer as a climax top and said positions are being managed with market-level, not stock-level, risk controls.

Key Arguments: Many 2023 buy signals have already met their minimum or median upside objectives, so their bullish edge is diminished. A market can still be shorted even while some buy signals remain active if the action now resembles exhaustion and blow-off behavior. The current rally is strong, but strong momentum at a crowded, widely accepted high can be bearish rather than bullish. Inflation-adjusted returns matter more than nominal highs; on that basis, the secular bull market may have already peaked in 2021/2022. Banks and small caps lagging the S&P 500 at the top is a classic late-cycle divergence and differs from normal healthy bull markets. Equal-weight indices failing to confirm cap-weighted highs suggests the rally is narrow and unstable. The current pattern of upside gaps and powerful short-term gains looks more like a commodity blow-off than a durable stock-market advance. Cycle dates add timing risk because several major turns in history aligned with them, including 1987 and 2007. A recession is more likely if this is a final market peak, especially given prolonged weakness in leading indicators and the inverted yield curve. Speculation is now concentrated in high-quality, institutional names, which Berg sees as more dangerous than speculation confined to low-quality, fringe stocks.

Data Points: S&P 500 decline after July 31 peak to October 27 low: 10.38% - Berg said he was short during that period in 2023. January 2023 buy-signal median S&P objective: 4,956.23 - He said this objective was later met in 2024. Breadth thrust reading: 1.90 to 1 - New York Stock Exchange 10-day advance/decline thrust on January 12, 2023. Breadth thrust projected S&P target: 5,035.98 - One of the 2023 buy signals’ median projections. Combined momentum signal target: 5,067.83 - From four-week price strength plus upside volume condition in January 2023. S&P 500 new all-time high level: 5,111.06 - Intraday high cited as of April 23, 2024. S&P 500 nominal gain since Sept. 1, 2000 peak: 235% - Used to argue long-term gains depend heavily on entry price. S&P 500 gain since March 6, 2009 low: 666% - Shows huge nominal rally from the financial-crisis low. Inflation-adjusted bull-market peak reference: January 3, 2022 - Berg said the real peak in the S&P may have occurred then. Fed tightening moves: 11 rate hikes - He argued this matches conditions often seen at bull-market peaks. Most bullish market-peak historical Fed hikes mentioned: 17 - 2007 peak cited as the maximum historical case in his table. New highs at the peak threshold: 95 - The one indicator he said was inconsistent because it exceeded prior peak norms. Largest historical new highs at a final bull-market peak: 87 - 2011 was cited as the previous maximum before the current reading. S&P 500 rally from Oct. 27 low to Feb. 23 high: 23.59% in 63 days / 80 days cited in a related comparison - Berg called this blow-off-like, especially after the 10.28% correction. Magnitude of prior correction before the rally: 10.28% - Correction into October 27, 2023, before the sharp rebound. Russell 2000 bear-market low date: October 27, 2023 - Berg said the Russell made a later bear-market low than the S&P. Russell 2000 rally since low by day 82: 25.61% - He compared this to much stronger historical post-low advances. Banking index rally from May 9, 2023 peak/low window: 39.56% in 185 days - Used to show banks remain weak relative to the S&P and earlier cycle lows. Paris CAC 40 rally from Sept. 29, 2022 low: 41.72% - He said European markets are mirroring the U.S. speculative phase. China rally from Oct. 4, 2022 low to Jan. 27, 2023 high: 60% - He said China’s move may be a bear-market rally or defensive value opportunity. Vanity/portfolio performance: 18.47% YTD through Feb. 27 - Berg’s theoretical long-only portfolio performance. SMCI gain in three weeks into climax top: 102% - He cited this as far above classic climax-top thresholds. SMCI highest volume day: Highest in history - February 16, 2024 was described as the climactic volume peak.

Pivotal Quotes: "I think it's quite possible there's a bear market ahead." — Milton Berg: Explaining why he is short even though some buy signals remain intact. "Momentum is great when the momentum is unexpected... When everyone is bullish, it's not bullish." — Milton Berg: His core argument that crowded strength can signal a top. "I think the market is now set up for a major bear market." — Milton Berg: Closing view on risk after surveying technical, breadth, and cycle evidence.

Implications: Listeners should treat recent strength as potentially late-cycle exhaustion, not confirmation of a durable breakout. Berg’s framework suggests rising downside risk, especially in extended AI/speculative leaders, if breadth and cycle-window confirmation deteriorate.