Ride the Melt Up for As Long as Possible

The Nasdaq Composite Index fell 10% in just three days in September.

You might wonder how I could call this a Melt Up with that kind of market action taking place. But that thinking is backwards…

Major volatility is a hallmark of a stock market Melt Up. And the recent correction is likely one of many we’ll see in the coming months.

Let me explain…

The Nasdaq soared 390% from mid-1996 to its peak in early 2000.

That’s the era of the original Melt Up. And things heated up even more in the final inning… The Nasdaq jumped 109% in the last 12 months of that boom.

This is the kind of move that’s possible today, now that the Melt Up is back on. It could mean life-changing gains in a matter of months.

But while big gains are likely, I want to be very clear about what we should expect as we invest in today’s environment…

You see, investing during a Melt Up takes guts. It’s often a bumpier road than the headline gains imply. There will be times when the market puts your emotions to the test.

For example, the late 1990s Melt Up wasn’t a one-way trip higher. We saw five pullbacks of roughly 10% in the final 18 months.

Thanks to hindsight, we know these corrections were just that… short-term falls before the next leg higher. So it’s easy to brush them off as irrelevant today.

I can assure you, it didn’t feel like that in real time. In the thick of those corrections, doubt can start to set in. You begin to question if the current correction is actually the next major bear market.

The reality is that 10% corrections are common in Melt Ups. We just saw one… And I expect we’ll see more in the months ahead.

The late 1990s were a great example of how often they occur. Take a look…

Again, from 1996 through March 2000, the Nasdaq fell roughly 10% on five different occasions… The largest one led to a 13% decline before bouncing back.

This is the reality of a Melt Up. It wasn’t all smooth sailing for investors. There is triple-digit upside potential as the mania unfolds… But that doesn’t come without increased volatility.

We saw that volatility last month when the Nasdaq Composite fell 10% in just three days. The market has recovered since. But folks were quick to question if that fall was the start of a longer downtrend…

You can’t fall into that hair-trigger thinking if you’re going to ride this Melt Up to incredible heights. You have to put your stop losses in place, of course. But you can’t get emotional.

Knowing that corrections are common will help you navigate the Melt Up. You’ll know ’em when you see ’em. And you’ll be less likely to jump ship during a correction and miss out on big gains.

For now, you want to ride the Melt Up for as long as possible.

Good investing,

— Steve

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Source: Daily Wealth