This Major Change Proves the 'Melt Up' Is Entering Its Final Stage
Editor's note: Two key events recently played out in U.S. stocks... just like what happened during the last great "Melt Up" in the late 1990s.
First, U.S. stocks plunged lower in late 2018 as extreme fear flooded into the market. But then, after folks had given up, stocks once again soared to new all-time highs.
The current bull market will celebrate its 11th anniversary next month. And True Wealth Systems editor Steve Sjuggerud believes we're now in the final stages of this Melt Up.
In today's Masters Series essay – adapted from a brand-new special report – Steve explains why he's so confident about the Melt Up... shows what a dying bull market looks like... and details how the market's vital signs will help you get out long before the crash...
This Major Change Proves the 'Melt Up' Is Entering Its Final Stage
I've been monitoring the "Melt Up" closely in recent months and years.
I knew this bull market would end with a major blow-off top... But it has been hard to know exactly when it would kick into high gear.
I've been closely watching a few important indicators. And these pieces are finally starting to fall into place right now.
I can now say this without hesitation... The final stage of the bull market in U.S. stocks is here.
Why am I so confident?
It's simple. And I can prove it by showing you a few charts. Before I do, let's recall exactly what happened during the last Melt Up...
The Melt Up is the final push of a bull market. But it doesn't necessarily lift all stocks.
In fact, the last time around, most stocks didn't soar in the Melt Up. And I believe that could be true this time, too.
The last true stock market Melt Up in the U.S. happened during the tech bubble of the late 1990s.
The entire market had soared through the '90s. The old fuddy-duddy companies made huge gains right alongside the exciting new Internet stocks. But that changed as the bull market neared its end and the Melt Up took over.
Just take a look at the chart below. It shows the last 12 months of the 1990s bull market. You can see that the fuddy-duddy companies (the Dow Jones Industrial Average) stopped keeping up with the exciting tech companies (the Nasdaq Composite Index). Take a look...
The Dow basically went nowhere for the final 12 months of this stock market Melt Up, while tech stocks soared triple digits.
The beginning of that major outperformance is what signaled the Melt Up entering its final stages. And now, finally, we're seeing it again.
Until recently, boring stocks and exciting tech stocks had soared alongside one another. The tide of recent years has lifted all ships. You can see it in the chart below...
From early 2018 to early 2019, the old fuddy-duddy stocks tracked nearly perfectly with the exciting tech sector.
But you might notice that the chart above ends a year ago. That's because things have changed in the last 12 months.
The exciting tech stocks are finally outpacing the boring fuddy-duddy businesses. Take a look...
This is a first... And it's big news.
Over the last year, the Nasdaq has dramatically outperformed the Dow. And it has hit new all-time highs along the way.
This is exactly what we saw in the late 1990s. It's what signaled the final stages of the Melt Up back then... And it's what happened right before a massive triple-digit boom in tech stocks in just 12 months.
This is it, my friend. We don't need to make it complicated. This is proof the Melt Up is entering its final stages.
It's here, and we have to take advantage of it!
That's why you're reading this – because you realize that now is the time to get onboard.
Still, we need to think beyond the Melt Up, too. We need to realize that this won't last forever.
So today, I want to share something equally important with you – one of the indicators we'll use to know when the Melt Up is near its end. Here are the details...
This Is What a Dying Bull Market Looks Like
In 1999, investors felt great – the best they had felt in years.
But it wasn't a healthy market. In reality, U.S. stocks were like a sick patient.
If you looked at the market's vital signs, you could easily see its numbers were going down every month.
Death was certain if the market's vitals didn't change... And they didn't.
The Nasdaq fell 80% from peak to trough. It was the worst bear market in U.S. stocks in my lifetime – and hopefully the worst I'll ever see.
This was also the end of the last Melt Up. Financial history may not repeat – but it does rhyme. So studying what happened in the last great Melt Up gives us excellent clues about what will likely happen next, and what the end of the current Melt Up might look like.
It's also important to note that the "death" of the current stock market boom is a certainty. It's the longest bull market in history. But for now, it can still go on...
In "people years," it has reached an age that most humans never will. This market is like a 92-year-old man.
The thing is, bull markets don't die of old age... What's important isn't the patient's age, it's the patient's health.
We need to look at the market's vital signs to determine its health. So that's exactly what we'll do before finding the absolute best ways to profit in the Melt Up.
First, let's take a look at some basic metrics...
If I were your doctor, I would probably take your height, weight, and blood pressure. With that, I could make a lot of informed assumptions about your health. We can do the same in the markets...
For example, one basic sign of a healthy market is whether more stocks are going up than down.
What if the main stock market index was going up... but more stocks were falling each day than rising?
That's when you start to question the overall health of the market. And that's exactly what was happening at the end of 1999...
More and more stocks were faltering, but the outsized performances of a few large stocks drove the S&P 500 Index higher. The rest of the index had already started to fall.
The chart below shows it. The blue "advance/decline" line is a simple measure... You take the number of stocks that went up in a given day and subtract the number that went down.
If more went up that day, the line goes up. If more went down, the line goes down. Take a look...
In a typical bull market, as the market goes up, the advance/decline line goes up, too. And that's what happened from 1995 to 1998.
What happened from 1998 to 1999 is interesting, though...
The overall stock indexes were still going up, but more stocks were falling than rising. That was not a healthy market. The bull market was withering.
While not as extreme, the same thing happened before the last major stock market bust in 2007. Take a look...
The S&P 500 was hitting new highs. But the advance/decline line was trending down. Not as many stocks were rising as the market peaked. And that was a warning sign for stocks.
So... where are we today?
Today's advance/decline line looks nothing like the late 1990s or 2007. Take a look...
In recent years, the advance/decline line has mirrored the overall market. When stocks went up, the line went up. And when stocks went down, the line went down.
It also broke out to new highs alongside the overall market in recent months.
That's how this should work. That's the sign of a healthy market.
This is one of five tools we use to track the health of the Melt Up. I expect the Melt Up will last another 12 months or so. But we need to be willing to sell whenever the market moves to an unhealthy state. And these five indicators will tell us when that happens.
The advance/decline line is our first tool. It's a fantastic tool. And it's giving the "all clear" signal today. But it's just one way we can take the market's vitals.
We've found four other measures that give us insight and help us look at the big picture to determine the overall health of the market, too.
These four measures – alongside the advance/decline line – give us a pretty darn good idea of how healthy the bull market is. If they all confirm what's happening in the S&P 500, we're in good shape. The market is healthy.
But if they don't... if they're not continuing higher – or worse, if they're falling while the broad market marches on – then they're flashing an advance warning sign.
We're not there yet, though...
We've identified a handful of indicators that flashed warning signs during the last two major market peaks. And today, they're collectively showing that the coast is clear.
Yes, stocks corrected in late 2018. But the market has jumped to new all-time highs since. And mostly everything we're watching has followed suit.
Importantly, looking at the last stock market busts, the top in stocks didn't happen until all five of our indicators were flashing warning signs at the same time.
That's not the case today. So there isn't yet reason to worry that the Melt Down is around the corner.
We've taken Mr. Market's vitals... And he has passed his physical with flying colors.
This won't last forever. The bull market will end one day. But it won't die of old age... The indicators we're following should give us warning signs long before a major crash.
So for now, we have nothing to worry about. The market is healthy and the Melt Up is entering its final stages. And that means now is the time to take advantage of this incredible opportunity.
Good investing,
Steve Sjuggerud
Editor's note: The Melt Up keeps rolling for now. And it's a truly once-in-a-lifetime event for investors... Most of us will never see another wealth-creation opportunity like this.
So you absolutely must make the right moves today.
That's why Steve hosted a special event last week... He wants as many folks as possible to have everything they need to maximize their profits before the Melt Up ends. If you missed the event, that's OK... We're offering a free replay for a limited time. Watch it right here.