Now Everyone's On Board with The Melt Up
We've been referencing the "Melt Up" theory for months and months. Looks like everyone's on board now.
Knowing the value of contrary thinking, is it time to sell our stocks. After all, if the majority are all clamoring to get in, shouldn't we get out? Not so fast.
First of all, a true Melt Up should get a lot more intense, even crazy. Not saying it must, just that it mostly has in the past. The media talking "Melt Up" doesn't qualify as intense or crazy. They may simply have grabbed the "Melt Up" as a good story that enhances the "Santa Claus Rally" that happens most years. After all, there's only so many times you can write about a Santa Claus Rally.
Not only that, but December of last year more or less trashed the venerable tradition of the Santa Claus Rally. You remember, don't you? Stocks were severely hammered going in to Christmas Day.
But that's all behind us now. We're back to drinking the Santa Kook-Aid with a chaser of Melt Up. Even the AAII (American Association of Individual Investors) survey of investor sentiment shows a relatively strong tilt to bullishness.
Hold on! Isn't that a red flag?
Yes and no. Yes, because that survey has served as a decent contrarian indicator. When individual investors get bullish, it's usually a sign that a correction is just around the corner. And that very well could be coming - a correction that is. But a correction won't cancel the Melt Up - if it's indeed here.
A correction (let's say in January) won't necessarily stop or reverse a real Melt Up. It would merely put it on hold. A true Melt Up represents a powerful force that won't be exhausted until, well, until all desire to buy is thoroughly, irrevocably exhausted. So far, there's not clear sign that such is the case.
So as we finish up 2020 - a great year for stocks, an impressive year for bonds, and a surprisingly strong year for gold - we'll take the gains we got and take a peak at January. What might we find?
One scenario: Investment managers bought like crazy year-end (Santa Claus Rally) to be sure their portfolios show as fully invested end of year. Heck, who wants to be out of one of the strongest years for stocks in memory? And if the buying is based on such "window dressing" we may see a sell-off in January, as managers strip off the window dressing and return to whatever allocation they thought was appropriate before the Santa/Melt Up action forced them, in a sense, to take action and buy.
Another scenario: Individual investors who seem to be taking the bait to buy stocks get slammed just as they've filled up their stock allocations. And why not? It's an all too common fate for individual investors to buy just before the fall. Hey, don't blame me. It's just the way things have gone forever and ever.
The thing is, either of these doesn't negate the Melt Up. It doesn't even preclude individual investors from jumping back in after they take a bath.
So Melt Up remains likely for now, and may very well weather any anticipated correction in the New Year.
Speaking of which, 2020's is coming.
Knowing the value of contrary thinking, is it time to sell our stocks. After all, if the majority are all clamoring to get in, shouldn't we get out? Not so fast.
First of all, a true Melt Up should get a lot more intense, even crazy. Not saying it must, just that it mostly has in the past. The media talking "Melt Up" doesn't qualify as intense or crazy. They may simply have grabbed the "Melt Up" as a good story that enhances the "Santa Claus Rally" that happens most years. After all, there's only so many times you can write about a Santa Claus Rally.
Not only that, but December of last year more or less trashed the venerable tradition of the Santa Claus Rally. You remember, don't you? Stocks were severely hammered going in to Christmas Day.
But that's all behind us now. We're back to drinking the Santa Kook-Aid with a chaser of Melt Up. Even the AAII (American Association of Individual Investors) survey of investor sentiment shows a relatively strong tilt to bullishness.
Hold on! Isn't that a red flag?
Yes and no. Yes, because that survey has served as a decent contrarian indicator. When individual investors get bullish, it's usually a sign that a correction is just around the corner. And that very well could be coming - a correction that is. But a correction won't cancel the Melt Up - if it's indeed here.
A correction (let's say in January) won't necessarily stop or reverse a real Melt Up. It would merely put it on hold. A true Melt Up represents a powerful force that won't be exhausted until, well, until all desire to buy is thoroughly, irrevocably exhausted. So far, there's not clear sign that such is the case.
So as we finish up 2020 - a great year for stocks, an impressive year for bonds, and a surprisingly strong year for gold - we'll take the gains we got and take a peak at January. What might we find?
One scenario: Investment managers bought like crazy year-end (Santa Claus Rally) to be sure their portfolios show as fully invested end of year. Heck, who wants to be out of one of the strongest years for stocks in memory? And if the buying is based on such "window dressing" we may see a sell-off in January, as managers strip off the window dressing and return to whatever allocation they thought was appropriate before the Santa/Melt Up action forced them, in a sense, to take action and buy.
Another scenario: Individual investors who seem to be taking the bait to buy stocks get slammed just as they've filled up their stock allocations. And why not? It's an all too common fate for individual investors to buy just before the fall. Hey, don't blame me. It's just the way things have gone forever and ever.
The thing is, either of these doesn't negate the Melt Up. It doesn't even preclude individual investors from jumping back in after they take a bath.
So Melt Up remains likely for now, and may very well weather any anticipated correction in the New Year.
Speaking of which, 2020's is coming.
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