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How To Tell If A Melt-Up Is Underway

Nov. 02, 2017 11:04 AM ETSPY, DIA, QQQ14 Comments
Clif Droke profile picture
Clif Droke


  • There is increasing talk among pundits of a stock market “melt-up” being underway.
  • Pundits fail to consider market velocity and investor sentiment factors when making this assessment.
  • Four signs should be present which confirm a melt-up. None are currently evident.

With the end of October comes the end of what Stock Trader's Almanac calls the "worst six months" for the Dow and the S&P 500 (SPX). The period between November and April is generally regarded as the best six months to be invested in equities, and that time is now upon us. In this commentary we'll examine the prospects for continued gains in the SPX in spite of already elevated stock price levels. I'll also attempt to answer the question that seems to be in the forefront of everyone's minds, namely: "Is a melt-up underway in the stock market?"

While the Dow and SPX have registered seven consecutive months of gains, the NASDAQ has logged only four straight monthly gains. Perhaps not surprisingly, it was the laggard NASDAQ which surprised traders in late October with a breakaway rally to new highs, leaving other major averages in the dust. The powerful performance of the tech sector lately has already inspired more than a few analysts and pundits to declare that a NASDAQ-led "melt-up" has started.

Among them is Jeffrey Saut, chief investment strategist at Raymond James. He argues that the S&P 500 "now appears to be involved in a melt-up." He further said that the market appears to be in its "upside 'blow off' stage." He added, however, that the secular bull market which Raymond James has embraced since October 2008 remains intact, with stocks in the "second leg" of the bull run that started in February 2016, adding his view that stocks have "years left to run."

What exactly is a "melt-up"? Investopedia defines a melt-up as a "dramatic and unexpected improvement in the investment performance of an asset class driven partly by a stampede of investors who don't want to miss out on its rise rather than by fundamental improvements

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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