Rare "Melt Up" Signal Detected Ahead of Fed Decision
Obscure Pattern Triggering
For market technicians attuned to the subtle signals preceding explosive upside frenzies, a rare "melt up" alert seems to be flashing ahead of this week's Fed meeting.
Friday's 6% Nasdaq rip capped its best 2024 week so far, fueled by hopes for an aggressive Fed easing cycle as inflation cools. Billionaire John Paulson amplified dovish expectations, calling for at least a 50 bps cut.
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What Is a Melt Up?
A phenomenon where assets become unhinged from fundamentals, driven by pure psychological forces like FOMO and greed. Vertical price spikes and triple-digit percentage gains are the norm, even among struggling firms.
Only a Handful in History
True melt ups have occurred just a few times, like the late 1990s tech bubble and 2017 crypto craze. While fortunes were minted by disciplined traders, most participants gave back gains when gravity returned.
The Critical Accelerant
In prior cycles, the spark for an unhinged melt up mania was excess Fed stimulus. Aggressive rate cutting feeds a "Buy Everything" mindset, divorcing valuations from reality as corporations gorge on cheap debt for buybacks.
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Signals Triggering
Other tell-tale signs now flashing:
Frenzied speculation in meme stocks, crypto, AI/tech
Stocks exhibiting classic melt up patterns
Record low equity allocations signal cash awaiting deployment
Oversaturation of bullish/euphoric commentary online
This Week's Wildcard
With odds of at least a 50 bps Fed cut at 75%, any hint of open-ended easing could accelerate the next speculative frenzy in risk assets.
Disciplined Risk Management Critical
Strict profit-taking plans are paramount for preserving potential windfall gains should a true melt up mania take hold. Failing to take chips off the table at peaks is what separates new millionaires from the rest.
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