[S&P500] 2008-Style Collapse in MotionI believe we are witnessing the early stages of a 2008-style crash, though this one will unfold more swiftly and catch many by surprise. The crash will likely test the COVID-era lows, and once the panic subsides, a recovery toward new highs will follow.
FUNDAMENTAL REASONS
After the COVID-crash recovery, the market became significantly overbought, and a pullback was inevitable—such is the nature of markets. Trump’s tariffs have provided a convenient excuse for profit-taking. While the tariffs didn’t directly cause the crash, they served as a much-needed catalyst. What might have been a typical bull market pullback, however, could escalate into full-blown panic.
Why? Index funds.
For the past decade, there has been near-religious advocacy for investing solely in low-cost index funds. This extraordinary delusion has overtaken investors’ collective consciousness—the belief that no one can beat the S&P 500, nor should they try. The most rational choice, then, becomes focusing on your career or business and parking your money in index funds. After all, if the game can’t be beaten, why bother playing? This logic resonates with rational index fund buyers—many of whom lack market experience and have never been tested in the trenches of a downturn. They assume they’re in it for the long haul, unbothered by pullbacks, confident they can hold through volatility. It’s a sound and logical stance.
But will they hold? It’s easy to stay committed when the market is rising. When losses mount, however, the limbic system overrides rational thought, thrusting you into survival mode. You begin calculating how many years of work you’ve “lost,” lamenting that you could have bought a house if you’d sold at the peak, or watching your children’s college fund evaporate. Sleepless nights follow, compounded by a barrage of negative news. Eventually, exhaustion sets in, and in a desperate bid to salvage what remains, you hit the sell button.
With so many unsophisticated investors—who have never endured a true market panic—holding portfolios dominated by index funds, a negative feedback loop emerges. The further the market falls, the more people question their strategy and sell. This cycle intensifies until the panic is overdone, weak hands are shaken out, and the market stabilizes. It’s a tale as old as markets themselves, though today’s index fund evangelists have yet to experience it firsthand.
TECHNICAL REASONS
On the monthly chart, a clear and potent triple RSI divergence stands out. This indicates the market is severely overbought and has been struggling to make new highs.
While technical analysis rarely delivers definitive signals and can often be ambiguous, a triple RSI divergence on a monthly chart is as strong as it gets. Monthly charts of high-market-cap indices are immune to manipulation and short-term noise—it would take an infinite amount of capital to artificially “draw” such a pattern.
The 2021-2022 pullback was an Elliott Wave impulsive wave down (a Leading Diagonal). In Elliott Wave Theory, impulsive waves mark either the final leg of a correction or the first wave of a new trend. A Leading Diagonal almost always signals the latter—meaning another impulsive wave in the same direction is likely to follow.
The 2022-2025 bull market, meanwhile, has proven to be an ABC corrective wave up within the broader trend. This suggests the bull run wasn’t a continuation of the prior uptrend but rather an extended correction that pushed to new highs.
Thus, the leading diagonal down foreshadows another impulsive wave lower, and the corrective wave up confirms this trajectory. Since March 2025, the market has entered free-fall mode—precisely what one would expect following an upward corrective wave.
This sets the stage for a high-probability Elliott Wave Expanding Flat pattern. What’s unfolding now is an impulsive wave down that should, at minimum, retest the 2022 low. If panic takes hold, however, the decline won’t find a floor until it hits a major support level—namely, the 200-month moving average (MA200 Monthly), which sits precisely at the COVID bottom. Should that occur, the magnitude of the drop would rival the 2008 crash.
