The Melt-Up Has Occurred: Now It’s Time for a Potential Crash
The current state of the market has sparked various opinions and discussions among investors. While some mistake me for a permabear, I must clarify that I am simply following the signals and indicators that guide my investment decisions. The recent market conditions have led to a risk-on melt-up, and these signals cannot be ignored.
In this journey, I have encountered skepticism due to my concerns regarding the mania surrounding AI and the FAAMG rally. However, it is crucial to pay attention to quantitatively-driven, emotionless signals to stay ahead of potential market developments. One example that illustrates this need is NVIDIA (NASDAQ:NVDA), a company that I often engage with on Twitter merely to highlight the importance of risk management strategies. The fate of NVIDIA itself doesn’t significantly impact my analysis; rather, it serves as a tangible reminder to remain attentive to signals.
Back in January, I expressed my belief that conditions were favoring a risk-on melt-up. Several factors aligned to support this perspective. Pre-election years typically witness positive trends in risk assets, which set a favorable backdrop. Additionally, signals such as the lumber/gold ratio rebounding, small-caps outperforming, and decreases in utilities and consumer staples further indicated a potential market upswing. Treasury movements also contributed to the consensus that the market was trending upwards. And indeed, we have witnessed the S&P 500 rise by nearly 20% and the Nasdaq 100 surge more than 40% this year.
While large-caps have led the charge, small-caps and utilities have faced challenges. Nevertheless, the economy has defied expectations and demonstrated resilience, as implied by intermarket signals. These signals, grounded in numbers and probabilities, provide a basis for my long-term bearish outlook despite my short-term bullish sentiment. It is essential to consider both sides of the equation.
Looking ahead, there is a potential catalyst for a market crash lurking in a major credit event. While the Nasdaq 100’s exceptional performance in the first half of this year suggests that equities may need a breather, my perspective is not based on hope but on reasoned analysis. The numbers and probabilities dictate caution.
As we move forward, it is crucial to maintain a balanced view, encompassing diverse perspectives and opinions. Investing involves inherent risks, and it is our responsibility to heed the signals while assessing the potential downside. The market’s current condition should not blind us to the possible risks and challenges lying ahead.
The stage is set for a potential crash, and we must remain vigilant. By staying informed, monitoring signals, and adopting meticulous risk management strategies, we can navigate the uncertain path ahead. Let us learn from the market’s past movements and prepare ourselves for the future.
