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This Is NOT What a 'Melt Up' Top Looks Like

By Dr. Steve Sjuggerud
Thursday, June 29, 2017

I've said it for years... The biggest gains will come in the final innings of the bull market.
My friend, the final innings have arrived. The big moment is here.
Yesterday, I explained my "Melt Up" thesis, and why I believe these final innings could lead to massive gains.
It's already happening... Stocks are up big over the last 18 months. But I don't believe we're at the top yet.
The reason is simple... Things don't look anything like they did at the top of the last Melt Up.
Let me explain...
During the last Melt Up, we saw the biggest gains in the tech-heavy Nasdaq Composite Index. It soared 200%-plus in 18 months as the Melt Up concluded. And prices hit truly ridiculous valuations along the way.
A lot of people point to today's valuations in the U.S. as a reason the recent gains can't continue. But here's the thing...
During the last Melt Up, valuations were already ridiculously high – before it all began.
The chart below shows the price-to-sales ("P/S") ratio for the Nasdaq during the 1990s. (This ratio is one of the best ways to measure real value in the stock market.) Take a look...

The Nasdaq's P/S ratio doubled from 1.5 to 3 in 1998-1999. It then roughly doubled again before finally hitting its peak.
This proves a powerful point... Valuations alone don't stop this kind of boom.
And that was just the broad index. The Nasdaq's top holdings hit even crazier levels...
The table below shows the Nasdaq's top 10 holdings at the end of 1999. Many of these are household names today. But back then, they were the most exciting and highest-growth businesses in America.
Importantly, as the table shows, these companies saw their P/S ratios explode during the last Melt Up. Take a look...
P/S June 1998
P/S December 1999
Sun Microsystems
JDS Uniphase
These numbers are hard to believe, but they're true...
Microsoft was priced at a ridiculous 17 times sales when the Melt Up began. Its valuation increased nearly 60% from there. Qualcomm went from being dirt-cheap at 1.3 times sales to a true bubble valuation of 27 times sales.
Only one stock on this list – WorldCom – saw its P/S ratio decline during the Melt Up.
Most of them saw their P/S ratios increase by multiple times – and they eventually reached crazy levels.
This is all the proof I need that the Melt Up in the U.S. isn't over yet.
Valuations are high... But they're nothing like the last Melt Up. And that tells me stocks can still soar dramatically from here.
Good investing,

Further Reading:

Bull markets don't die of old age. And based on today's strong economy, we want to own U.S. stocks right now. "This is where the biggest gains are made. I urge you not to miss out," Steve says. Learn more here: This Economic Indicator Says the 'Melt Up' Will Continue.
"The market isn't 'acting' like a market that's at the top yet," Steve writes. At the end of the last Melt Up, stocks flashed a key sign of weakness. And we haven't seen it yet today... Read more here: What Does a Dying Bull Market Look Like?

Market Notes


Today's chart highlights another winner in the homebuilding sector...
Regular DailyWealth readers know Steve has been bullish on housing since the bottom of the bust. Recently, we showed how this idea is playing out with homebuilders PulteGroup (PHM) and NVR (NVR). Both stocks are up big this year, riding the tailwinds of tight home inventories, low mortgage rates, and rising consumer sentiment.
Today, we'll look at another winner in the sector: KB Home (KBH). The $2 billion company has built about 600,000 homes over the past 60 years. It operates in seven states and 36 major markets. During its last earnings call, CEO Jeffrey Mezger reported the company's third consecutive quarter of more than 20% sales and profits growth. This business is doing well...
As you can see, KBH shares are soaring this year. They're up nearly 50% since January... and just hit a fresh 52-week high. Steve's bet on housing continues to be the right call. If rates stay low and inventories stay tight, homebuilders still have room to run...

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