What the Odds Really Say About a Bigger Fall

This week’s update at a glance

• Odds, not predictions: I frame the current pullback as either a valuation reset or the early stages of a deeper correction — without trying to “call the crash”.
• Leaders under pressure: high-multiple tech and semiconductors are being hit hardest, while other areas are holding up better for now.
• Breadth & small caps: what the behaviour of smaller companies and equal-weight indices suggests about the underlying trend.
• Preparation over reaction: how to think about cash levels, position size and watchlists so you’re ready if the sell-off deepens.

What you’ll learn

• How I separate a valuation and leadership reset from a true major top.
• The price-action clues I watch: leadership, breadth, volatility and sector rotation.
• Why “wait and see” so often ends with emotional selling near the lows.
• How different types of investors can think about cash levels and exposure right now.
• Practical steps to protect capital and be ready to buy quality names at better prices.

The thinking shift (in plain English)

The biggest trap in periods like this is getting sucked into stories. Bears call every pullback the next 1987 or 2000. Bulls assume every dip will be bought just as aggressively as the last one. Neither camp has a monopoly on the truth — and both tend to speak in absolutes that aren’t helpful for real-world decision making.

My approach is to ignore the narratives and let the market itself set the tone. When leadership is narrowing, volatility is rising and former winners are gapping lower on heavy volume, it’s a signal to respect risk, not a guarantee of a crash. Likewise, a bounce after a rough week only really matters if it shows improving breadth and follow-through, not just a bit of short covering.

You don’t need to know in advance whether we’re facing a “mere” correction or something nastier. What matters is having a plan for both paths: how much you’re prepared to see a position fall before you reduce risk, what you’ll buy if quality stocks get marked down, and how you’ll keep your emotions in check while that plays out.

What history shows (with important caveats)

Historically, major market tops where fundamentals have genuinely cracked don’t arrive with calm, orderly pullbacks. They tend to feature disorderly price action: wide-range candles, repeated gap-downs, failed rallies and heavy distribution across many sectors at once. Credit conditions tighten, earnings expectations roll over and investors are forced to de-risk.

What we’re seeing so far is different. There has been aggressive selling in the high-multiple leaders — especially parts of tech and semiconductors — but smaller companies and some economically sensitive areas have held up better. Indexes like the Russell 2000 haven’t broken down in the same way, which is more consistent with a valuation and leadership reset than the end of the cycle. That can change, but it’s the starting point for how I allocate odds between the two scenarios.

The caveat is important: no historical pattern guarantees the future. Past corrections where earnings stayed resilient have often delivered excellent opportunities for investors who were prepared. Corrections where the fundamentals cracked underneath them have been a very different story. My job is to keep updating the evidence as new data comes in, not to marry a narrative.

Where I’m focused now

• Leadership & money flows: tracking how the big technology and semiconductor names behave from here, and whether selling pressure spreads or starts to exhaust itself.
• Breadth & small caps: watching indexes like the Russell 2000 and equal-weight measures. The fact that smaller stocks have, so far, held up relatively better is an encouraging sign for the “valuation reset” case — provided that continues.
• Risk management first: being more conservative on entries, sizing and stops. This is not the time to be leaning into speculative names that are already down 20–30 percent and hoping they bounce.
• Preparation over prediction: maintaining a watchlist of high-quality stocks I’d like to own at better prices, and knowing in advance how I’ll respond if we get a sharper leg down.

Important information

_{Any advice in this video is general advice only. Neither your personal objectives, financial situation or needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. Garry Davis (AR No:317590) is an authorised representative of Primary Securities Ltd (AFSL No. 224107).}

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