Tom DeMark Warns of Imminent Bear Market, S&P 500 Could Drop 20%

Veteran technical strategist Tom DeMark has issued a stark warning that the U.S. stock market is on the brink of a significant downturn, with a bear market potentially looming within the next few months. DeMark, renowned for his precise market predictions, had accurately forecasted the market's peak in February and the subsequent trough in April. His latest analysis indicates that the current rally in the S&P 500 index is unsustainable and that a bear market is imminent.

DeMark's predictions are grounded in a comprehensive system that he has developed over half a century of studying market trends based on mathematical relationships. He focuses on identifying the exhaustion of trends, positing that markets peak during positive news cycles and bottom out during negative ones. A series of technical indicators, shifts in market sentiment, and cyclical timing models all point to the S&P 500 index potentially falling below 4835 points, a level reached in early April. This decline would represent a drop of over 20% from the February peak, officially marking the start of a bear market.

In a recent interview, DeMark emphasized the fragility of the current market environment. "The market is on the verge of peaking. The technicals have been too damaged. The stock market is extremely fragile, and any rapid changes in global trade prospects could severely impact it," he stated. His warnings come as the market is experiencing a rebound, with the S&P 500 index poised to erase all losses incurred following President Donald Trump's announcement of tariff policies last month. The index has been on a nine-day winning streak, the longest since 2004.

DeMark Analytics LLC, the firm specializing in identifying market turning points, suggests that the market could reach a short-term peak within days. DeMark highlighted that the current level of around 5669 points for the S&P 500 index could exhaust buying power. This prediction is based on his "countdown" research, which involves comparing a security's closing price with its high or low from four days prior. When this pattern repeats nine times, it signals an "exhaustion" phase. The S&P 500 index recently experienced its seventh such occurrence on Thursday.

DeMark explained that if the index achieves two more new closing highs, it could trigger a sell signal. The weakened technicals would then pressure the index, resuming its downward trend and potentially pushing it below 4835 points. Historically, markets do not bottom out during positive news cycles, as seen with recent trade developments. Instead, they typically reach their lowest points when conditions are dire, and all participants have conceded defeat. DeMark noted that the market was previously oversold and due for a rebound, but since then, it has struggled on a technical level, facing significant downside risks.