Market Top

Editor's Note: The wrong chart was included with last week's column. The chart has now been corrected, and is shown with this column, which is re-running this week.

Today, I answer your questions on market tops, starting in 2000, plus show indicators used to signal a market top. To help answer that question, I designed a chart using just three items, the value of the SPX (Standard & Poor’s 500), a trendline and a momentum indicator. There’s no need to make it complicated.

Per my chart, the SPX continued to make new highs in until hitting 1517 in August 2000. When price crossed down through the multi-month trendline (purple slotted line), the first sell signal hit (see point A).

In January 2001, a second sell signal hit when the price failed to make a new high (see point B). In the lower box, I feature a highly accurate momentum indicator showing as the SPX continued to rally and make new highs, the institutions were hitting the sell button, exiting their equity positions.

So, here are action points to think about:

First, are you aware of the different tools available to signal market tops?

Second, are you tracking your holdings to see if they are topping?

Third, are you tracking the market to see if it is topping-now?

Fourth, if not, why?

Wall Street makes its money with us being in the market. We make our money with what we own and when.

If anyone is interested in my next half-day seminar, Strategies to Outperform the Market, it will be Friday, Oct. 20. Go to my website, Davidoengland.com, for details.

Next week, we will examine the 2007 market tops to see if we can pick up clues before the downfall.

Plan your work, work your plan, and share your harvest!

DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy (Davidoengland.com) and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Your decision to buy, sell, short or hold any investment product is a direct result of your decisions, free will, and research. For questions-send to thetraderseye@gmail.com.

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