Let us begin with the obvious.

The market, as represented by the S&P 500, is expensive. Very expensive. The S&P/TSX Composite Index has also held firm.

Markets continue climbing. But the reasons behind that strength deserve scrutiny. Rising prices can coincide with deteriorating underlying solvency conditions. Liquidity, political urgency, and economic stabilization efforts can all push markets higher even as fundamentals weaken.

What is more interesting is what is not leading.

The NASDAQ-100 appears to be losing some structural momentum. The artificial intelligence trade, which has powered much of the recent enthusiasm, may be beginning to strain under valuation pressure.

This brings us to a formation within the SVA framework we are now calling the Mousetrap.

What Is the Mousetrap?

The Mousetrap forms when price and fair market value begin diverging at different growth rates. On an SVA chart, fair market value is represented by a dotted trajectory. When price accelerates away from that trajectory, the gap widens.

History shows that this gap almost always closes.

And it typically closes with price falling back toward fair market value.

Timing that decline is difficult. You may miss the first five or ten percent. But missing that early portion is minor compared to the 40 to 60 percent drawdowns that often follow.

A Clear Example: Constellation Software

Consider Constellation Software (TSX: CSU).

For years, the stock traded in a stable valuation range, roughly between 16 and 26 times book value. The growth was disciplined. The premium was sustained.

Then, in September 2025, that base gave way.

The broad price chart alone does not reveal the full story. But when viewed through price-to-book levels within the SVA structure, the valuation expansion and eventual failure become clearer.

The stock did not gradually drift lower. It broke.

That is the Mousetrap snapping shut.

The Critical Breakpoint

Where did the decline stop?

At what SVA defines as the Bubble Breakpoint. Approximately 7.4 times adjusted book value. Mathematically derived as one divided by e squared, where e equals 2.72.

This level has repeatedly acted as a structural boundary.

Failure to hold that level historically carries significant downside risk.

Why This Matters Now

There are roughly twenty stocks within the NASDAQ 100 today that resemble Constellation before its break. Many are popular. Many are widely owned.

This does not mean sell everything.

It does mean pay attention.

If you own stocks trading at significant premiums to fair market value, caution should replace complacency. Monitor the valuation structure. Watch for widening gaps. Recognize when momentum shifts.

Markets do not fall because they are expensive.

They fall when expensive stocks lose their valuation support.

The Mousetrap is not about fear. It is about recognizing structural risk before it compounds into capital loss.

Watch the full breakdown here:
https://youtu.be/y1vfN2DmTVY

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