The odds of a 2011-like Fall Melt Up are growing, but as I mentioned a month agowhen I began making the case, there will be some important differences should a surprise move higher take place. The Summer Correction which I believed was likely when I began writing about it in late June/early July came and went. The S&P 500 SPDRs ETF SPY, +1.69% went through a sharp decline, everyone seemingly bemoaned risk after it already manifested, and emerging markets were seemingly guaranteed to send the world into bear-market abyss. Certainly, risks remain high on the global landscape, but key to managing money is recognizing that probabilities change daily, sometimes minute by minute as new information comes out."In some cases, I quite like irritating people who need to be irritated." —Robert Smith One of the reasons the markets collapsed so suddenly in the summer was a clear divergence between U.S. equities, and what I've called in prior writings "the last pillar," which is credit-spread action. Credit spreads tend to widen when the market begins fearing an increased probability of company defaults. Also, those spreads tend to widen prior to periods of stock market stress. When that happens, it tends to coincide with a "risk off" move in Treasurys, which we've shown in our award-winning papers have predictive power on equity volatility (click here to download). How does one track credit spreads, and what are they saying now about future probabilities? Take a look below at the price ratio of the iShares iBoxx High Yield Bond ETF HYG, +0.04% relative to the iShares Treasury Bond 7-10 Year ETFIEF, +0.10% As a reminder, a rising price ratio means the numerator/HYG is outperforming (up more/down less) the denominator/IEF. Notice what may be a bottom and trend reversal at the far right. When the ratio trends higher, credit spreads are narrowing. When the ratio trends lower, they are widening. Despite bulls screaming about U.S. equities going higher for the last two years, and the illusion of price stability, credit spreads began widening in the middle of last year. The Summer Correction of 2015 was the sudden realization to that fact. Now, credit spreads appear likely to narrow as seasonality also favors a more bullish stance in risk assets. Should this continue, the melt-up case grows stronger. However, I do not believe the melt up will be as strongly felt in U.S. equities as it was in 2011. Rather, cyclical sectors, commodities DBC, +0.33% and emerging markets which took the brunt of the pain likely outperform the hardest under such a scenario. And while the narrative remains wildly negative on these areas, narratives have a funny way of making people think stories don't change. They unequivocally do. All you need is price to move first. This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. More from MarketWatch