Implied correlation is low enough to where market corrections are expected. A move up and over the horizontal will accompany a downturn. It won’t reset until it gets much higher, which will most likely involve a correction.
Moving lower increases the expected size and severity of the next correction. Nothing is impossible, but a bullish exit from this condition is the least likely scenario. It’s possible the market could be higher from here post-correction. The opposite of a ringing endorsement to get long, at least for myself.

For QQQ, $700 is the target area for melt-up, about 20 to 30 percent higher. At that point, resistance areas kick in, implied correlation is probably low single-digits again, there might be crazy numbers such as BTC $200k, Ethereum $5k, Nvidia $5 trillion market cap.


On the other side of a melt-up are fundamentals. To really sustain a bull market, the stock market has to consume more of the economy. Whether Trump realizes it or not, tariffs are siphoning cash into the government and if all goes according to plan, will also lift wages and business taxes via onshoring. Reducing the deficit lowers credit growth, slowing the economy. Biden Admin and Trump Admin I policies were “stock market uber alles” policies. Trump Admin II has powerful factions seeking to put workers first.
There’s little evidence in the economic data for an “AI” boom beyond data center construction. There’s some evidence of an onshoring boom in manufacturing investment. What is good for sustainable GDP, federal deficits and American wages is bad news for stocks that dominate the S&P 500 and Nasdaq. While it may not be inflationary, a successful policy should reduce the ratio of asset prices to wages.
Risk Rises Into the Top
Going back to implied correlation for a moment. Scenarios that take SPX and NDX up to ever less fundamentally-indefensible highs might include more corrections along the way to suck in more dip-buyers. The final run is a short-squeeze though.
Other signs of euphoria tops include penny stocks running. A general sense that you can’t lose in this market, everything goes up, everything is awesome.
There’s the economic narrative for that euphoria. The narrative was created by excessive pessimism around tariffs, “nothing stop this train” thinking around the deficit that leads to all-in with leverage positioning, various flavors of TDS. Every assumption, despite being contradictory, combines to make stocks go up.
Think Trump is a psycho who will destroy the economy with tariffs? Maybe sold low in April. Now chasing the market higher. Or chasing merely because the panic shook you out. Weak-kneed bears might also be chasing.
Think USG is going to destroy the economy with endless deficits? Probably chasing BTC, silver et al higher. Very low cash position, possibly negative with high margin or leveraged positions.
Think tariffs and deficits are definitely inflationary? Chasing the commodities and crypto, probably with leverage.
Think Trump is a genius who will be successful with economic policy? Probably bidding up stocks because that’s what you do. Stocks don’t go down if GDP goes up, right?
Or you’re moving into the “inflation” trades, buying commodities assets and buying cheap foreign markets in Asia. A boom will drive up demand for real inputs.
In the beginning of a stagflationary boom, even a hyperinflationary one, the market initially believes a boom is underway. It’s only later, once the cat is out of the bag and entrenched inflation is tearing through the economy, does the market realize its folly.
Individually, some of these scenarios may prove correct. All have varying degrees of probability. With SPX and NDX however, the issue is the price! It’s all baked in. Everything is Awesome for stocks and everything has to stay awesome forever. With commodities, they could tank in a recession because demand could collapse.
Demographics are terrible and my hunch is, the push for deportations will explode across the West if unemployment is rising. Anecdotal, but I saw a video from the UK on social media. A migrant punched a man holding a young child, perhaps around 1 year old, causing him to drop the baby. A mob of English men, including some in suits, proceeded to pummel the migrant. Searching for a link to the story, the first hit was a riot elsewhere: Police vans attacked as clashes erupt after anti-immigrant mob descends on Epping asylum hotel
The West is at its breaking point with open borders. While I believe mass deportations will vastly improve quality of life (another anecdote: Angelenos are reporting LA rush hour traffic is great since ICE starting doing raids), there will be a hit to headline GDP because it will reduce consumption. Housing demand could collapse if cities such as Los Angeles experience plunging crime, traffic and rent such that Angelenos-in-exile return. Who knows if Trump will follow through and if European governments fall to nationalists or act to prevent that as Denmark did, but if history rhymes, demand for everything could take a sharp hit in a recession as migrant populations collapse.
The 2020-2021 Timeline for Comparison
We lived through an inflationary boom from Mar 2020-Dec 2021. Gold topped in August 2020. Copper & Co. take off three months later in November. Inflation is soaking up attention by May 2021. Commodities/value/inflation trades actually top out about this time. In February 2021, the ARKKs, emerging markets, some crypto topped out. The FAANGs dragged the market to its peak in late 2021.
Using the same timeline (spit-balling here, not a precise analog):
Gold peaked in April 2025. Copper broke out three months later, in July 2025.
If copper and other important-for-inflation commodities keep rising, then by late September or early October, the market might start talking about rate hikes. If the Mag 7 drag SPX higher for another 10 months, it’s topping out in August 2026.
Sticking with that timeline, the “inflation” trades topped out around May 2021. A similar top would have them making relative highs in December 2025.
Given current valuations, i.e. SPX already being beyond where it was in December 2021, it’s already at a point where “anytime” is a possible start for an SPX bear market.
There are signals such as the 2s10s spread already knocking on the door of recession and bear market or correction moves. If I had to guess, the most likely melt-up scenario is one with Fed rate cuts that reduce all interest rates, flattening the curve. A correction on recession fears probably happens, but then gives way to the market believing no recession is coming.
The bull scenario is goldilocks: rates fall along with inflation and growth rises. The late 1990s was fueled in part by the Asian Crisis, so in this scenario, perhaps a deflationary recession in China, a serious bust, sends a chill throughout the world and leaves the U.S. market, and its tech giants, as the main source of growth for longer than expected. This path is hidden by a dense fog if it is out there.
Two Roads Diverged on Wall Street
One path takes the market to new all-time highs, perhaps 30 percent higher on a stretch move. The entire way up, valuations (by some measures) will be beyond extremes reached in 1929 and 2000. Excepting correction lows, it’s likely some technical indicators such as implied correlation will also be locked into “imminent correction” readings.
The technicals will break in a melt-up.
In the final leg of dotcom, the Nasdaq blasted out of its monthly Bollinger bands. The body of the final candle (March 2000) was entirely outside, save for the wick. Likely something anomalous will mark the top of this market if it melts-up.


I’d rather look for gains in areas of the market with more sustainable paths higher, overseas or commodities-related. If a melt-up didn’t narrow completely, some beaten down or laggard sectors such as healthcare should bounce.
Sitting in SPX/NDX exposes the risk of a correction that is not a correction, but is finally the first leg down in a bear market.
Meanwhile, the miner portfolio here is up about 70 percent since March. NDX is up less than 20 percent. If making hay while the Sun shines, might as well make as much as possible.
Alternatively, if everything is going down, then the place to be shorting will be leading sectors again, aka semiconductors. Mag 7. Nasdaq.