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Stock Market “Melt-Up”? Here’s What You Need to Know

Investors have one dangerous tendency near big market tops and bottoms

by Bob Stokes
Updated: December 23, 2019

Don't miss out on the stock market "melt-up"!

At least, that's the sentiment of some equity strategists. For instance, look at this Dec. 16 Marketwatch headline:

Why Wall Street sees the stock-market on the verge of a 'melt-up'

"Melt-up" means that stock prices will go up even faster than they have over the past few weeks.

Our Dec. 18 U.S. Short Term Update also discussed the expectations for a melt-up:

The [melt-up] hype is the same gushing excitement for shares that marked the end of the rally in January 2018...

You see, market observers, investors and traders are usually the most fervent about the continuation of a price trend just when that trend is near an end. (It works the same way in bear markets, but then it's the pessimism that prevails.)

Let's go back nearly two years, when there was a sudden explosion in the use of the term "melt-up." On Jan. 8, 2018 alone, the founder of SentimenTrader.com noted a previously unheard-of total of 120 news and twitter "melt-up" mentions. For the period of January 15 to January 31, 2018, Google news showed 201 news articles that included the words "stocks" and "melt-up." On January 26, The New Zealand Herald got onboard, asking, "Are You Ready For The Great Stock Market Melt-Up?"

January 26, 2018 was the very day that the DJIA topped and then went on to a volatility eruption that saw the index surrender 10% of its value in about two weeks. This chart shows that swift decline from Jan. 26 through Feb. 12, 2018:

djiadaily021218

Of course, the DJIA eventually went on to reach new highs. However, the point is that stock market prices turned down just when the cries for a "melt-up" was the loudest.

This was not a one-off. Over the past four decades in the business, we've seen over and over that extremes in sentiment are followed by trend turns.

Yet, sometimes those sentiment extremes can persist for a time. So, if you're trying to time the turn, we know that Elliott wave analysis lets you add much more precision to your decisions.

Right now, we are sharing with subscribers what Elliott waves show next for stocks.

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Dow Industrials: The January Elliott Wave Theorist Provides a Two-Centuries Perspective

The stock market's price pattern adheres to the Elliott Wave Principle, which is mathematically based on the Fibonacci sequence of numbers.

Hence, many Elliott-wave minded traders set short- and intermediate-term price targets based on Fibonacci ratios within price charts.

Now, the just-published January Elliott Wave Theorist gives you long-term -- very long-term -- Fibonacci analysis of the Dow Industrials.

This analysis goes back two centuries. What's more, it is relevant now!

Get detailed insights, which includes eye-opening charts, in the new Elliott Wave Theorist.

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