A New Way to Protect Yourself in This Mega Melt-Up
In the summer of 1929, America’s radio boom was in full swing… Stores couldn’t keep radio sets in stock. Families who already had radios in their living room crowded around them to listen to Bing Crosby, Jack Benny, and the World Series as it happened. No star shone brighter in the boom than the Radio Corporation of America (RCA). It was the leading radio set maker of the day, and Americans were buying about 10 million sets a year. RCA’s share price had climbed from about $43 in 1926 to more than $500 by the late summer of 1929—a 12-fold gain. To its shareholders, it wasn’t just a radio manufacturer. It was also a stock that could change your life. Eight weeks later, the stock market plunged into the worst bear market in history. And RCA went from $568 to $26—a 95% plunge that erased nearly every fortune it had minted. The 1920s may seem like ancient history today. But in the 1990s, this pattern repeated when another new communications technology called the Internet came on the scene. I was creating software and building websites at the time. And I remember it well. Dot-com firms that were losing millions of dollars saw their stock prices skyrocket. It made no sense. But by 1999, the tech-filled Nasdaq had roughly doubled over the past 18 months. And I had a deep sense of FOMO (fear of missing out) for having failed to make my fortune in the boom like so many others. When the Nasdaq topped 5,000 in March 2000, it felt as though a new era had begun. A year later, the index had plunged by about 60%. And it went on to lose 80% of its value before it finally bottomed in 2002. Now, something extraordinary is happening again in tech. Except this time it isn’t a new form of communication—it’s a new form of intelligence. Since ChatGPT launched in November 2022, AI stocks have soared. Nvidia is up more than tenfold since then. And the Nasdaq 100—an index packed with the biggest AI winners—has more than doubled over that same stretch. And a breakthrough new technology tied to eye-popping stock market gains isn’t the only thing linking the late 1920s, late 1990s, and mid-2020s. Two other common threads run through these “Mega Melt-Ups.” So today, let’s look at what Mega Melt-Ups are and what triggers them. Then I’ll show you how you can capture any future upside while protecting yourself from losses in the inevitable meltdown. Three Telltale Signs of a Mega Melt-Up A melt-up happens when stocks stop rising rationally and start going vertical. It’s the final sprint of a roaring bull market before gravity takes over. Mega Melt-Ups are rare and unusually powerful versions of the same phenomenon. And they happen when three forces collide. In the 1920s, it wasn’t just excitement over radio that sent stocks soaring. The boom was also the result of an increase in margin loans, which let ordinary folks borrow money to buy stocks. There was an explosion of consumer credit that powered the broader economy higher. And something similar unfolded again in the 1990s. Online brokerage accounts made trading almost instantaneous and cheaper than it had ever been. Meanwhile, easy credit and home-equity loans fueled a sense of limitless possibility. Every Mega Melt-Up is the result of the same three forces: a transformative new technology, easy market access, and abundant credit. Here’s how those forces are in play today: - AI promises to spark a productivity boom unlike anything we’ve ever seen. Folks believe it will transform everything from software development to drug discovery, supply-chain logistics, and education.
- Zero-commission trading has opened the door to millions of new investors. And fractional shares mean they can get started for as little as $1.
- Consumer credit balances are at record highs, giving the economy both fuel and fragility. And interest rates are coming down.
As we’ve seen in recent years, you can make a lot of money when stocks are melting up. But history tells us every melt-up ends the same way: with a meltdown. The goal isn’t to panic or hide in cash—it’s to be prepared. You want to capture any remaining upside gains but protect yourself from the inevitable reversal. Here are three steps you can take now to make sure you’re not blindsided by the next meltdown. Step 1: Review Every Long-Term Investment You Own If you’re holding anything long term—index funds, dividend stocks, or even crypto, ask yourself: Why am I in this position? Write it down. What was your reason for buying? Has it changed? Is the company still growing earnings? Or is the story all hype? Most investors never do this kind of audit. But markets reward clarity and punish complacency. And a melt-up is the time to tighten your thinking. Step 2: Make Sure You’re Well Diversified The more diversified you are, the less power any single market event has to cause you a ruinous loss. The S&P 500 sounds like the safest, most diversified investment you could make. Five hundred companies. Every sector. Every industry. If that’s not diversification, then what is? But what many investors don’t understand is that the S&P 500 doesn’t treat every stock equally. It’s weighted by market value. The bigger a company gets, the bigger a presence it becomes in the index… and in your portfolio. Before long, a single giant stock—or two or three—can dominate what you thought was a diversified portfolio. That happened in the 1990s, when Cisco Systems became the world’s largest stock. Today just two AI stocks—Nvidia and Google—have contributed about one-third of the S&P 500’s year-to-date gains. At several points, Nvidia added more to the index than the bottom 400 stocks combined. That’s not diversification—it’s concentration risk. Step 3: Protect Yourself with an Exit Strategy At TradeSmith, we’re big believers in having a sell strategy, not just a buy strategy. Too many investors buy a stock, or a whole portfolio of stocks, without an exit strategy. And without a clear exit rule, investors fall into the trap every study on investor behavior warns about. They sell winners too early and hold losers too long. It’s called the “disposition effect.” And it’s documented in research going back to the 1980s. Hope replaces discipline—and small losses turn into ruinous ones. But for the first time since I’ve been TradeSmith’s CEO, I’m NOT telling you to lean on our classic long-term trailing stops to protect your portfolio. They’re a powerful tool—but they weren’t engineered for the kind of fast, reactive environment we’ve seen this year. During the tariff-induced “flash crash” this April, the S&P 500 dropped nearly 20% within days. And individual stocks saw even sharper drops. Many plunged 40%, 50%, even 70%. And it’s not just this past year that’s been hyper-volatile. Outside of the 2008 financial crisis, the 10 biggest daily moves in the S&P 500 over the past 30 years have all occurred in the last five years. It’s why my team and I at TradeSmith have created our newest software tool. It’s a short-term sell signal designed for a market that now moves in minutes, not months. How to Know When a Stock Is About to Drop Unlike traditional sell alerts—which look back years or even decades—our new system looks at the past six months of trading to map a stock’s “healthy” volatility range. It treats anything that falls outside that range as a red flag. The system doesn’t wait for a 20% or 25% slide to confirm trouble. It flashes a warning the moment a stock shows abnormal weakness, often weeks or months before a major drop. If one of the stocks you own experiences abnormal short-term volatility, it will automatically alert you. In our backtests, it flashed the following warnings on: - Freshpet (FRPT) before a 74% crash
- Lifetime Brands (LCUT) before a 77% crash
- Bloomin’ Brands (BLMN) before a 72% crash
- Funko (FNKO) before an 86% crash
- Rocky Brands (RCKY) before a 75% crash
- American Eagle Outfitters (AEO) before a 69% crash
- The Buckle (BKE) before a 21% crash
- Levi Strauss & Co. (LEVI) before a 49% crash
- Shoe Carnival (SCVL) before a 42% crash
- The Gap (GAP) before a 72% crash
- QVC Group (QVCGA) before a 99% crash
If you want the full walkthrough, I’m hosting one next week. I’ll be going into more details on how our sell-alert system works during my Tipping Point 2026 event on Tuesday, December 16, at 10 a.m. Eastern Time. I hope you’ll clear time in your schedule to join me. I’ll be there alongside my MarketWise colleague Marc Chaikin. Marc is known for sharing a series of stunningly accurate market forecasts with his more than 800,000 followers around the world. - In early 2022, he sounded the alarm on the post-COVID bull run, just 90 days before stocks plunged into a bear market.
- In early 2023, he said stocks were about to kick off an extraordinary recovery and shoot up 20% or more. That year alone, the S&P 500 gained 26%.
- And earlier this year, he warned of a violent market shift just before the S&P 500 plunged 19% following the Liberation Day tariffs.
Nobody has called the twists and turns of this market quite like Marc has. He’s worked on Wall Street for 50 years, survived 10 bear markets, built three new indexes for the Nasdaq, and created his own quantitative indicator still used on Wall Street. I don’t know any other investor who matches his record. Which is why his warning about 2026 deserves serious attention… Based on decades of market data, he’s now predicting a bear market in 2026, with an average market loss of 20%. Many stocks could see even sharper drops. That’s why Marc and I partnered to launch our new sell-alert system. It’s built specially for the volatility shocks, fast trend breaks, and tipping-point conditions Marc sees ahead. If Marc’s latest prediction proves as accurate as his past calls, stocks will likely bottom in the fall of 2026 after a steep drop. That’s when one of the most lucrative recoveries in history will begin. Most investors will miss out. But by following our new system, you can also pinpoint when to get back into any stock in the market to catch the next upswing. I’ll demonstrate how it all works during our event next Tuesday. And Marc will get into more detail on why he’s calling 2026 the Year of the Bear—including the four-year cycle that’s played out over more than a century of data. We’ll also show you how to use TradeSmith’s newest investment tech to protect your downside and new spot opportunities on the upside. Use this link to sign up for free. I hope to see you there. You’ll walk away with a clear plan for navigating a year that’s shaping up to be full of surprises—and the tools to protect yourself long before the crowd reacts. Sincerely, 
Keith Kaplan
CEO, TradeSmith P.S. Could your favorite stocks be headed for a sudden drop? When you sign up for our Tipping Point 2026 event, you’ll get access to our Flash Crash Screener. You can use it to check on up to 10 of the tickers in your portfolio and instantly see if they’re susceptible to a plunge. But to get the name and ticker of the worst offender—a widely loved stock that looks doomed according to our new system—you’ll need to tune in on December 16. Here’s that link again to register your interest. | 
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