When does it all end?
When will the “Melt Up” be over… and the meltdown begin?
I know you’re worried about this question. I am, too.
And today, I’ll share one simple reason why the Melt Up isn’t over yet… and why stocks can still move much higher.
Last month, I showed you one simple way to see a dying bull market.
The advance/decline line – a measure that shows if more stocks are going up than down – was a warning sign at the end of the 1990s boom.
The advance/decline line is signaling “all clear” for now. And another similar measure also says the market is healthy today. Here are the details…
Today’s indicator is the S&P 500 Equal Weight Index. You see, the regular S&P 500 is “market-cap weighted.” That means the largest companies get a larger weighting.
Consumer-electronics titan Apple (AAPL), for example, has a nearly 4% weighting in the S&P 500, even though the index typically holds 500 companies.
Those kinds of outsized weightings mean that, at times, the overall market can rise while most stocks in the S&P 500 are falling.
So in addition to monitoring the regular index, we can confirm the overall market’s movements with this equal-weight index. Every stock is equally weighted, regardless of size. This equal-weight index should mirror the S&P 500 when we’re in a healthy bull market.
And again, this indicator told us the market wasn’t healthy at the end of the tech boom. Take a look…
The S&P 500 Equal Weight Index was hitting “lower highs” when the overall market peaked in 2000. It was 6% below its 1999 high as the overall market hit new highs.
That was a major warning sign for the market. And the same thing happened in 2007…
The index hit a lower high as stocks peaked. The majority of stocks had stopped moving higher. And the final Melt Up gains all happened in what was overall a weak market.
This isn’t happening today… yet. Take a look…
The chart shows that the S&P 500 and the S&P 500 Equal Weight Index are moving together today. They’re both coming off all-time highs.
It will be a warning sign if the overall market hits a new high and the S&P 500 Equal Weight Index doesn’t. But that’s not happening today.
Stocks are still broadly moving higher. The bull market remains healthy.
The Melt Up is still intact… So my advice is simple: Stay long.
Source: Daily Wealth