7 signs we’re near a market top, and what to do nowRecall March 4, 2014 a day that will go down in Wall Street history as the beginning of the end for this latest bull market, which is about to celebrate its fifth birthday.
On March 4, the Dow Jones Industrial Norm (DJI : DJIA) rose 227 points freed base on a report that Russian troops were pulling back from Ukraines border. This news lit the market alight, a mark that the market is leading into a mania stage the place where it doesnt take huge to boost inventories.
Buffett or Icahn: Whom to empower with?.
Indeed, nowadays instead of the Nifty Fifty inventories that specified the late 1960s market, we have like Facebook (NASDAQ : FB), Tesla Motors (NASDAQ : TSLA), and Chipotle Mexican Grill (NYSE : CMG) the new new things.
Can the market go high pitched? Sure, eventhough the high pitched it goes, the more unsafe it goes. Often, during the latter levels of a bull market, the market divides itself from reality and appears to be on some other planet.
Such red flags are all over :.
1. Retail investors have been streaming money into stock mutual funds. The care of losing out on the sixth year of a bull market has created something more or less a buying panic. Although not as maniacal as we saw in 1999, the stock cheerleaders are back and rooting for their inventories and mutual funds to go higher just like they always do before a crash or bear market.2. The Investors Intelligence survey is concerning. The closely watched II survey shows a low proportion of bears (less than 20 %), which some have pointed out is the lowest proportion since just before the 1987 crash.
3. Sentiment indicators are pessimistic. The VIX, the put-call ratio and other major sentiment indicators suggest that investors and traders are getting complacent. Apparently, market participants believe that the Fed, or their fund manager, will protect them in a worst-case scenario.
4. Fundamentals are being ignored. Obscenely high P E ratios are passed over, along with soft economic readings (i.e. GDP and ISM). When the fundamentals are weaker than expected, the weather is blamed.xEOL.xBL.COM P 4,336.22, -15.90, -0.37 %.
5,0004,0003,0002,000. xEOL .11121314. xEOL .5. The stock exchange crash of 2008 has been forgotten. Investors forget, but the market never does. Those who do not heed the lessons of the past will again learn a painful lesson.
6. The Nasdaq is soaring. The three-year chart of the Nasdaq (NASDAQ : COMP) has gone nearly parabolic, hitting a 14-year high of 4,351 on March 4. Its the Go-Go years all over again. (And that late 1960s bull market ended with the 1973-74 bear market.).
7. Fear and greed are succession. When the market reaches the tipping point (and were getting closer), investors and traders buy ATM (anything that moves). The care of losing out causes a buying panic.
What to do now :.There have been numerous crash predictions over the last five years. As a result, many investors have closed their ears, and who can blame them? The market has ignored the warnings and continued to go up. One thing about crashes : They cant be predicted (but it wont stop people from trying). However, it is possible to recognize a unsafe market, which is what we have now.
The market is wearing no clothes.Just like the emperor, the market is wearing no clothes. Right now, many people see only what they want to believe. Its been a age since investors felt full-throated care, and many have forgotten what it feels like. The panic to buy will be replaced by the urgency to get out at any price. No one can know what will cause perceptions to change, but they will.
At the moment, emerging markets are in deep trouble, and what is happening in Ukraine didnt help. Nevertheless, the CEOs of several major brokerage have urged investors to go long emerging markets because they are so cheap. Once again, these well educated salesmen are wrong. Emerging markets will recover one day, but not soon. Urging investors to buy on the dip is disgraceful.
Sit and wait?.If we are in the mini-mania stage of the bull market, the market will continue to go higher freed base on rumors, hope, and greed. Sitting on the sidelines and waiting for the bull market to top out takes tremendous discipline. Trying to capture that final 5 % can be costly if you get the timing wrong (and most people do). Be prepared for increased volatility as we get approximately the end.
Naturally, its not easy to sit on the sidelines when everyone else seems to be making money. Although many investors are dreaming of some other 30 % return this year, the odds are good that it will be a difficult year. Yes, during a mania stage anything is possible, but with each passing week, the clock is ticking.