S&P 500: Setting Up A Melt Up
Undeniably bullish
The Emerging Melt-Up Scenario
The missing ingredient for the melt-up scenario in my analysis has been risk-on market behavior, particularly the lack of it. This absence has been evident in small-cap equities, which have failed to break out despite the broader market indices hitting all-time highs week after week. For some time now, risk-on behavior has been absent in the market, but the past two weeks are starting to show signs of change.
And with that change— the melt-up scenario becomes plausible. A melt-up being an environment defined by a sharp rise in equities— fear of missing out will hit high gear and extreme greed will be the dominant sentiment.
The S&P 500 is up 17.73% and the Nasdaq 20.83% year to date— if a melt-up scenario is underway I anticipate the small cap performance from here will well outperform the broader market. This week’s note will provide an update on the three risk-off criteria, along with insights on the modern and traditional risk-on small-cap market barometers, and how I am participating in the melt-up trade.
Risk Off Criteria
Active readers know that my analysis relies on three indicators to collectively determine whether the market is in a risk-on or risk-off environment. When all three indicators are active, a decline becomes the most probable move. Conversely, when all three are inactive, a risk-on environment is favorable (and more probable when small cap participation is present)