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U.S. Stocks: "Melt-Up" or Melt-Down?

Stock market "volatility has been collapsing" while "optimism has been soaring"

by Bob Stokes
Updated: April 23, 2019

Every stock investor knows that the market has rallied since the start of the year, yet many investors are brushing aside the possibility of a pullback.

Beyond remaining simply bullish -- they're using the phrase "melt-up." In other words, these investors expect market prices to go up even faster.

For example, on April 17, a market-live Bloomberg blogger wrote:

Upside risks for stocks are lurking in plain sight.

Catalyst-rich backdrop for a U.S. stocks' melt up this month.

This brings to mind the sentiment that was widely expressed in early 2018.

On Jan. 8, 2018, Bloomberg reported:

Almost daily there are more and more converts to the belief in a melt-up.

On the same day, a market observer at sentimenTrader.com noted a sudden explosion in the use of the phrase "melt-up," as that day saw a previously unheard-of-total of 120 news and twitter "melt-up mentions."

On January 26, a "chief macro strategist" summed up the prevailing sentiment by saying:

The collapse in global output volatility to 60-year lows is providing a further boost to economic activity and equities. So we think 2018 is the year of melt-up rather than meltdown.

The date that was published is significant because it was the very date that the DJIA reached its all-time high before plummeting 10% in just the next two weeks.

This brings us to what's going on now. Here's a chart and commentary from our April 17 U.S. Short Term Update [wave labels available to subscribers]:

chart-lines

Over the past week and a half, the S&P 500 index gapped higher at the open on 6 out of 8 days. On three of the higher-gap opens, however, the index either closed the session flat or down. The S&P gapped strongly higher at today's open but closed at its lowest level of the past four days. All the while, daily stock market volume has been tepid at best (dating all the way back to late December), volatility has been collapsing, optimism has been soaring and financial news stories have appeared discussing a market "melt up."

A stock market "melt up" is certainly possible in the weeks ahead.

Then again, we urge that you take a look at all of our analysis. It's telling a story that we believe that you need to know.

Financial Market Trends Turn on a Dime

We saw this in 2007. Everything seemed to be going along just fine -- and then, seemingly overnight, the bottom fell out.

Almost no one expected it.

I say "almost" because we at EWI did sound the alarm. Indeed, on Jan. 5, 2007, our Elliott Wave Financial Forecast published a special section titled:

2007: The Year of Financial Flameout

As we know, 2007 saw the start of the worst financial crisis since the Great Depression of the early 1930s.

We say that to say this: It would be wise to know what EWI's analysts are saying now.

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