The Market Meltdown That Didn’t Happen

Move along folks, nothing to see here.

Your green watchlist likely reflects reality.

Despite endless doom predictions over the last few days, markets remain resilient.

Even Trump’s tariff tantrum that wiped US$2 trillion on Friday couldn’t break the underlying trend.

Weekly uptrends remain intact across major indices.

And while put option volumes spiked to levels not seen since the April tariff meltdown…

I’ve argued that this is just institutions hedging winners, not the prelude to market Armageddon.

So I reckon the meltdown chatter continues to prove very premature.

Crypto’s necessary medicine

Crypto didn’t fare well in the tariff fallout however.

The crypto correction was brutal but served a necessary purpose: flushing out excessive leverage from the system.

US$19 billion in leveraged positions got liquidated during the October 10–11 carnage.

Bitcoin crashed from US$122,000 to below US$105,000, while Ethereum dropped 14% and altcoins fell 30%+.

But this was exactly the type of leverage flush that creates a healthier market structure for the next leg higher.

Overleveraged traders got wiped while genuine holders remained intact.

Perpetual futures funding rates hit their lowest levels since the 2022 bear market.

Perpetual futures are where the real crypto ‘degens’ like to gamble — a special type of derivative market for those hooked on leverage.

The recovery came fast…Bitcoin climbed back above US$114,000, Ethereum above US$4,100.

And the fundamentals remain solidly intact: declining rates, improving regulatory clarity, and accelerating institutional adoption through ETFs.

Peak speculation still ahead

True speculative fever hasn’t arrived yet, and several key indicators support me on this.

The Russell 2000 hit new records for the first time since 2021, gaining 7% in August alone.

Australian small-caps broke above 2021 highs recently, with the next target being the 2007 all-time high, just ~10% higher:

Source: Market Index

Biotechs still struggling – pay attention to this sector for a real market top

For me, biotechs are ones to watch closely. Often, their forward-dated revenues are attractive when rates come down.

And their multiples get seriously inflated towards the end of a bull run.

Check this out…

The S&P Biotech ETF [XBI] fell 49% from 2021 to 2022, and many ASX small-cap biotechs remain well below their peaks, trading at deeply discounted valuations.

I think when biotechs finally move in earnest, that’s your signal.

Source: TradingView

[Click to open in a new window]

Real market tops feature euphoria and ‘this time is different’ narratives.

More signals to watch

Over the last eight years studying small-caps and micro-caps, I’ve been fortunate enough to see a few mini-cycles play out.

These are the signs to me:

1. When retail investors pile into penny stocks with abandon.

2. When fluff company announcements are sprayed into the ether with no substance.

3. AND…When microcaps consistently hit inflation-adjusted/money supply-adjusted late-2021 levels, not just brief spikes. (More on this tomorrow)

So, I don’t think we are there yet.

The historical precedent is clear in my experience: a sustained euphoria in micro-caps tends to mark the real top.

Periodic corrections like we’ve just seen usually shake out weak hands and excess leverage.

In a nutshell…

I suspect the absence of a widespread speculative fever in the market’s typical barometer areas means there should be more to come.

Tomorrow — a full breakdown of what narratives about ‘All Time Highs’ really mean.

Hint: Nothing.