We showed in prior letters that the US stock market has recently reached all-time high valuations across a variety of dimensions. Now, the market is flashing warning signals of a potential major market top based on a variety of divergent technical and cross-market indicators. We show four of these in this letter:
New 52-week Highs vs. Lows Chart
Normally, when a stock market index goes up and down, the underlying stocks reaching new 52-week highs minus those hitting new 52-week lows go up and down, in sync. One can see that relationship most of the time in the NASDAQ Composite chart below over the last year. Recently, however, it’s been the opposite. This index just closed at a marginal new all-time high, while the underlying stocks hitting new lows have exceeded those hitting new highs for 17 days straight. Weak, non-confirming market internals can signal a major market top. In this case, a narrow group of large stocks has driven the overall index return to new highs without confirmation from its underlying components.
Widening CCC vs. BBB Credit Spreads
Credit markets are generally quicker to pick up on deteriorating corporate cash flows than equity markets. While the S&P 500 Index has been hitting new all-time highs over the past six months, US triple-C credit spreads relative to triple-B have widened significantly over the same time, another non-confirming divergence, which we show in the chart below. Similar warning signals of a pending stock market downturn from this indicator can be seen in the same chart historically:
- A divergence in credit spreads vs. the 2000 tech bubble and stock market top;
- Trends and levels consistent with the very beginning of the last two major stock market meltdowns and recessions: the 2008 Global Financial Crisis and the 2020 Covid recession; and
- Deterioration consistent with the 2022 bear market.
Recent Negative Correlation of the Advance-Decline Line vs. S&P 500
The advance-decline line is a plot of the cumulative sum of daily differences between the number of issues advancing and those declining for a given market index. In capitalization-weighted stock indices, such as the S&P 500, price changes of larger market-cap stocks will have larger effects on index returns. The advance-decline line can provide insight regarding the number of individual stocks participating in a market rally or decline.
Divergence occurs when the underlying index moves in one direction and the advance-decline line for that index moves in the opposite direction. When the advance-decline line is moving down while the underlying index pushes higher, one begins to question the true health and direction of the market.
Below is a chart showing the rolling 50-day correlation between the S&P 500 and its cumulative advance-decline line. Over 2026, we have seen their relationship weaken substantially and even turn negative. The last time we saw such divergence was during the peak of the Dotcom bubble.
S&P 500 Deterioration of Members Trading Above 200-day Moving Average
The percent of members in the S&P 500 trading above their 200-day averages has plunged over the past month, as we show in the chart below, even as the index itself has remained relatively flat, near all-time highs. This divergence points towards a breakdown in market breadth despite apparent top-line stability. Again, performance is becoming increasingly concentrated among a small group of megacaps. As one can see in the chart, a similar setup emerged in the lead-up to Liberation Day, where technicals began to weaken before the broad market selloff. Selling pressure and risk reduction were already building beneath the surface ahead of the tariff announcement. The tariff announcement was the spark that lit the fire.
The Perfect Hedge
What is the perfect hedge for the current stock market? We cannot guarantee the perfect hedge, but that is what we strive for. For us, the perfect hedge is to have the position that can deliver the best alpha vs. the S&P 500 at this time. Alpha means risk-adjusted outperformance. We believe the position for the best alpha today is gold. But what we think is the best way to be long gold for high alpha is through Crescat’s diversified activist precious and critical metals exploration strategy, where we believe there is much better value and future growth relative to gold itself. That is where our precious metals hedge funds are focused. We think the perfect hedge for those who want to capitalize on the potential US large cap stock market top, along with positioning for the gold upside, is through our macro and long/short funds, where we not only have activist metals longs but also a put option portfolio currently focused on S&P 500 puts. Implied volatility in the S&P 500 is remarkably low today. In our view, put options are cheap insurance with great asymmetric upside to a potential major market top.
Crescat’s Activist Metals Portfolio
We have built and refined a portfolio of mining companies over the last six years with advice from two seasoned PhD economic geologists. Our strategy has been largely focused on getting in early in the exploration segment of the mining industry, where we can acquire activist stakes in early-stage companies with secure land packages and highly prospective precious and critical metal discovery targets. We balance the risk and potential reward through a broad, globally diversified portfolio.
By getting money to these companies for drilling, largely through PIPE deals with discounts and warrants, over this time, we have and continue to create many of the world’s largest new gold, silver, and copper discoveries with tier-1 development potential. Through our participation rights and future financing rounds, we have continued to support our most prospective companies and remain among the largest shareholders in these companies as they grow.
Our portfolio is incredibly cheap relative to the new metal value we have created. The market does not appreciate this yet, neither on an individual company basis nor collectively when it comes to the value of our highly curated portfolio. This critical but misunderstood segment of the mining industry gives us ample opportunities to deploy new capital into existing and new portfolio companies for future high expected returns. This is how we expect to deliver alpha as we march toward our $20,000 price target for gold over the next 3 to 7 years. For the macro case, see our recent letter, The Price Target for Gold.
Opportunity in the Pullback
Our funds delivered strong performance in August, as shown in the table below. While we are encouraged by the recent performance, we believe there is much further to go. We are now seeing a pullback this month, which we think is creating another timely opportunity to invest.
We remain confident that we are still early in a major bull market for precious metals and mining companies, particularly the exploration and development-stage companies where we are heavily focused. We have great places to put new capital to work today, including several new mining deals. For new investors considering an investment or existing investors looking to add to their allocations, we believe the current pullback presents an attractive opportunity to put money to work. Please reach out to the contact information below if you are interested.
Performance Estimated Through August 2026
Sources: HFR, Inc., NASDAQ, and Crescat Capital LLC. Past performance does not guarantee future results; Investing involves risk, including risk of loss. See additional important disclosures below.
Sincerely,
Kevin C. Smith, CFA
Founder & CEO
Nathaniel Gilbert
Analyst
For more information, including how to invest, please contact:
Marek Iwahashi
Head of Investor Relations
(720) 323-2995
Linda Carleu Smith, CPA
Co-Founder & Chief Operating Officer
(303) 228-7371
© 2026 Crescat Capital LLC
Important Disclosures
Discussion and details provided are for informational purposes only. This letter is not intended to be, nor should it be construed as, an offer to sell or a solicitation of an offer to buy any security, services of Crescat, or its Funds. The information provided in this letter is not intended as investment advice or recommendation to buy or sell any type of investment, or as an opinion on, or a suggestion of, the merits of any particular investment strategy. This letter may contain certain forward-looking statements, opinions and projections that are based on the assumptions and judgments of Crescat with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Crescat. Because of the significant uncertainties inherent in these assumptions and judgments, you should not place undue reliance on these forward looking statements, nor should you regard the inclusion of these statements as a representation by Crescat that these objectives will be achieved.
CPM has not sought or obtained consent from any third party to use any statements or information indicated herein that have been obtained or derived from statements made or published by such third parties.
All content posted on CPM’s letters including graphics, logos, articles, and other materials, is the property of CPM or others and is protected by copyright and other laws.
Performance
Performance data represents past performance, and past performance does not guarantee future results. Performance data, including Estimated Performance, is subject to revision following each monthly reconciliation and/or annual audit. Individual performance may be lower or higher than the performance data presented. The currency used to express performance is U.S. dollars. Before January 1, 2003, the results reflect accounts managed at a predecessor firm. Crescat was not responsible for the management of the assets during the period reflected in those predecessor performance results. We have determined the management of these accounts was sufficiently similar and provides relevant performance information.
1 – Net returns reflect the performance of an investor who invested from inception and is eligible to participate in new issues and side pocket investments. Net returns reflect the reinvestment of dividends and earnings and the deduction of all expenses and fees (including the highest management fee and incentive allocation charged, where applicable). An actual client’s results may vary due to the timing of capital transactions, high watermarks, and performance.
2 – Performance figures presented Excluding SCM SP represent the fund’s net returns calculated without the impact of the San Cristobal Mining, Inc. side pocket that was designated on July 1st, 2024. The side pocket includes a private equity asset that is not available to new investors in the funds on or after July 1, 2024. Excluding these assets provides a clearer view of the performance to investors coming into the funds after that date. New investors cannot participate in the SCM Side Pocket and will not share in its potential gains or losses. Investors should consider both the overall performance and the performance excluding the side pocket when evaluating the fund’s returns.
Benchmarks
The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry.
The HFRX Equity Hedge Index measures the performance of the hedge fund market. Equity hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios.
The HFR Indices are being used under license from HFR Holdings, LLC, which does not approve of or endorse any of the products or the contents discussed in these materials.
The PHLX Gold/Silver Sector Index (XAU) is a capitalization-weighted index composed of companies involved in the gold or silver mining industry.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
VanEck Junior Gold Miners ETF (GDXJ®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Global Junior Gold Miners Index (MVGDXJTR), which is intended to track the overall performance of small-capitalization companies that are involved primarily in the mining for gold and/or silver.
VanEck Gold Miners ETF (GDX®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MarketVector Global Gold Miners Index (MVGDXTR), which is intended to track the overall performance of companies involved in the gold mining industry.
SPDR® Gold Shares seeks to reflect the performance of the price of gold bullion, less the Trust’s expenses.
iShares® Silver Trust (the ‘Trust’) seeks to reflect generally the performance of the price of silver.
Returns for any index include the reinvestment of income and do not include transaction fees, management fees or any other costs. The performance and volatility of the funds will be different than those of the indexes. One cannot invest directly in an index. Benchmarks are unmanaged and provided to represent the investment environment in existence during the time periods shown.
Hedge Fund disclosures: Only accredited investors and qualified clients will be admitted as limited partners to a CPM hedge fund. For natural persons, investors must meet SEC requirements including minimum annual income or net worth thresholds. CPM’s hedge funds are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933 and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The SEC has not passed upon the merits of or given its approval to CPM’s hedge funds, the terms of the offering, or the accuracy or completeness of any offering materials. A registration statement has not been filed for any CPM hedge fund with the SEC. Limited partner interests in the CPM hedge funds are subject to legal restrictions on transfer and resale. Investors should not assume they will be able to resell their securities. Investing in securities involves risk. Investors should be able to bear the loss of their investment. Investments in CPM’s hedge funds are not subject to the protections of the Investment Company Act of 1940.
Those who are considering an investment in the Funds should carefully review the relevant Fund’s offering memorandum and the information concerning CPM. For additional disclosures including important risk disclosures and Crescat’s ADV please see our website: https://www.crescat.net/due-diligence/disclosures/