Did All-Time S&P Highs Last Week Mean the "Melt-Up" is Here?
Last week the S&P his another all-time high (on Friday). Does this mean the infamous "Melt-Up" is stocks has firmly made its presence known?
We've referred to the Melt-Up in a number of previous posts, but haven't taken the bait quite yet. Why? One way to answer that is to defer to our "Brain Trust." None of our reliable sources has put their chips down on the Melt-Up - yet. One seems pretty convinced that any "Melt-Up isn't worth the risk. Another thinks we've already melted up, albeit in a kind of slow motion, in recent years. Sounds interesting, but, really, the "Melt-Up" theory with which I'm familiar defines it as a more parabolic rise in prices than we've seen over that time frame. Then there's one who's basically waiting. They recommend a smallish 15% position in stocks until more evidence comes in.
But doesn't the all-time high in the S&P carry any weight here?
Well, the risk-averse source shows examples of all-time highs right before the beginning of bear markets. The "Melt-Up already happened" source and the "wait-and-see" source want more evidence based on a number of factors. The most prominent of these: The S&P has been the only major index to hit all-time highs. The Dow Industrials and Transports, the Russel 1000, the NYSE Composite all have lagged behind. Some are close, but simply haven't hit all-time highs yet.
So what happens if they do? We'll likely get some increased enthusiasm from some Brain Trust members. Maybe they'll up their commitment to stocks.
As for what we'll do, it remains unknown so far. We've got some contingency plans, but so far these haven't been triggered either way.
Now, the Brain Trust consists of people who offer their views as to what's happening and what's likely to happen. What about some objective indicators we follow? These have nothing to do with opinion; they're things like ratios, charts, etc. anyone can simply read. Of course, there's always some degree of interpretation involved in considering some of these, but let's stick with two rather straight-forward indicators and see what they're telling us.
One is an aggregate of proprietary measureso of the "internal" action in the stock market. It measures things like volume, highs-lows, advance-decline percentages and other factors. Since its proprietary, I don't know all the measure, nor how they're weighted. What I do know is that it's been pretty accurate over long periods of time and has been outrageously bullish for years now. There have been a few short periods where the chart of this proprietary indicator has fallen below its moving average. But each time, the negative actions doesn't last long, and it turns right back up and continues on its merry bullish way. It is, to say the least, bullish as we speak.
The other is a number of very short-term measures. These have been overbought for weeks. They're overbought now. Combined with the extremely low VIX, the temptation would be to say we're on the cusp of a correction, and a rather sharp one at that. The thing to remember, though, is that these readings only say there can be such a drop - not that there inevitable will be. Even with the long stretch of overbought conditions, there's no assurance these conditions must be relieved by a short, sharp drop. Prices could simply meander for a while until the overbought conditions lessen.
As for the VIX, it's been at levels that have in the recent past preceeded significant corrections. But that's not guarantee that will happen again. It could spike up a bit, cause some falling price action, but not lead to signficant drops.
With all that, I'm still not going all in on a "Melt-Up." In fact, I'm not so sure that going all in makes sense even if a Melt-Up were to manifest itself absolutely clearly. Why? Well, Melt-Ups preceed bear markets. And unless you've got some way to grab your Melt-Up profits before the bear devours them, it's not going to do you any good to profit from the Melt-Up only to lose those profits - and much, much more.
We've referred to the Melt-Up in a number of previous posts, but haven't taken the bait quite yet. Why? One way to answer that is to defer to our "Brain Trust." None of our reliable sources has put their chips down on the Melt-Up - yet. One seems pretty convinced that any "Melt-Up isn't worth the risk. Another thinks we've already melted up, albeit in a kind of slow motion, in recent years. Sounds interesting, but, really, the "Melt-Up" theory with which I'm familiar defines it as a more parabolic rise in prices than we've seen over that time frame. Then there's one who's basically waiting. They recommend a smallish 15% position in stocks until more evidence comes in.
But doesn't the all-time high in the S&P carry any weight here?
Well, the risk-averse source shows examples of all-time highs right before the beginning of bear markets. The "Melt-Up already happened" source and the "wait-and-see" source want more evidence based on a number of factors. The most prominent of these: The S&P has been the only major index to hit all-time highs. The Dow Industrials and Transports, the Russel 1000, the NYSE Composite all have lagged behind. Some are close, but simply haven't hit all-time highs yet.
So what happens if they do? We'll likely get some increased enthusiasm from some Brain Trust members. Maybe they'll up their commitment to stocks.
As for what we'll do, it remains unknown so far. We've got some contingency plans, but so far these haven't been triggered either way.
Now, the Brain Trust consists of people who offer their views as to what's happening and what's likely to happen. What about some objective indicators we follow? These have nothing to do with opinion; they're things like ratios, charts, etc. anyone can simply read. Of course, there's always some degree of interpretation involved in considering some of these, but let's stick with two rather straight-forward indicators and see what they're telling us.
One is an aggregate of proprietary measureso of the "internal" action in the stock market. It measures things like volume, highs-lows, advance-decline percentages and other factors. Since its proprietary, I don't know all the measure, nor how they're weighted. What I do know is that it's been pretty accurate over long periods of time and has been outrageously bullish for years now. There have been a few short periods where the chart of this proprietary indicator has fallen below its moving average. But each time, the negative actions doesn't last long, and it turns right back up and continues on its merry bullish way. It is, to say the least, bullish as we speak.
The other is a number of very short-term measures. These have been overbought for weeks. They're overbought now. Combined with the extremely low VIX, the temptation would be to say we're on the cusp of a correction, and a rather sharp one at that. The thing to remember, though, is that these readings only say there can be such a drop - not that there inevitable will be. Even with the long stretch of overbought conditions, there's no assurance these conditions must be relieved by a short, sharp drop. Prices could simply meander for a while until the overbought conditions lessen.
As for the VIX, it's been at levels that have in the recent past preceeded significant corrections. But that's not guarantee that will happen again. It could spike up a bit, cause some falling price action, but not lead to signficant drops.
With all that, I'm still not going all in on a "Melt-Up." In fact, I'm not so sure that going all in makes sense even if a Melt-Up were to manifest itself absolutely clearly. Why? Well, Melt-Ups preceed bear markets. And unless you've got some way to grab your Melt-Up profits before the bear devours them, it's not going to do you any good to profit from the Melt-Up only to lose those profits - and much, much more.
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