No not necessarily...
It's all to do with the amount of available money..Contrary to belief.
the bull market cycle kills itself due to its own success, when everyone is overly optimistic (due to continuing good company/economic news) they become 100% invested...Money is locked into the market and the availability of money becomes less available which causes the market loses momentum ..so it pays to watch the margin calls as investors will optimistically take on loans to continue investing...but after that avenue is exhausted the market just simply dries up....That is why bull market corrections are healthy events as it helps to free up money and creates available money thus increases market momentum build to a new level...
The problem with today's Wall St Markets is the lack of decent bull market corrections..a common warning sign in the late stage of the Bull Market Cycle ...
The cyclical Bull to Bear reversal turning point usually goes unnoticed..The 1st stage of the bear cycle is most often only identified with hindsight..Most investors at this time are still very optimistic and think it is an overdue "healthy" bull market correction as the economy is usually still growing at this stage (lagging indicator)...
Charts do show some cyclic reversal behaviours...but the investor should focus on typical warning signs...
Below is a data dump that I'm able to copy and paste from my computer concerning the subject ..Warning signs of Bull bear cyclic reversals..(some of this is old stuff but still relevant).
.Remember that cyclical reversals are rare events there has only been 25 bull to bear cyclical reversals with the S&P500 index in the last 90 years
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Investor Behavioural signs Bull to bear cyclic reversal
Please.. Google bull cycles and bear cycles and read up on it.....it pays to do your own research rather than rely on other peoples summaries
Below is an "off the top of my head" very brief summary to get you going on the subject... I have a 23 point tell tale signs..I wrote it 6 years ago and it's somewhere in my computer... sadly its somewhere among my harddrive digitable mess.. I'll post it when I rediscover it
Mista ...It's very difficult to identify the cyclic reversal to bear as it's happening, you usually pinpoint it with hindsight...
It happens at time when everyone is confident ..when everyone is fully invested in the market.....usually before the economic cycle tops out so everyone is confident about future growth...The reversal starts like any other bull market correction and quickly recovers again as sellers buy back in however as all the buyers have bought "100% in" there are a lack of buyers so there is a lack of available money and the market's momentum fails to rise much above new highs as it has exhausted itself. To add to the exhaustion problem ..the market being at its high point and investor confidence high .. this is seen as an opportunistic time to float companies to the public and list on the sharemarket ..this is the time when we see some investors over extend themselves and borrow to buy more (margin buying)...When another correction eventually happens margin calls are triggered and as investors are "all in", there's more sellers than buyers...This triggers the stage 1 Bear reversal The investors can't believe it and go into denial as the economy could be still be booming and investor confidence is very high... they lament seeing these " silly illogical cheap shares" and unable to average down (buy them)... the market struggles along and may form a double (triple) top....The big falls comes with stage 2 when something triggers the next down wave and with the economic cycle topped out, and slowly one by one investor denial turns to fear.
Lagging shares tend to be the high Div "safe" companies ..."safe" as providing essential services such as Utilities and Healthcare....also some commodity companies do well ...however these companies are not immune to the bear and eventually get savaged as well.
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Signs of the end of a cyclic Bull market cycle
1...Average life span 3.8 years..
Bull Market's End Overdue:
2...
Low Volatility: One might think that low volatility is good for the average investor, but it simply isn't so. "tends to precede powerful reversals that can wipe out investors, as was the case in 2000 and early 2008, Right now, the S&P volatility index, known as the VIX, is about 15, and has been in that low territory since mid-January. The normal range is between about 20 and 40.
3...
Short Selling Plummets: ..When you have a market where investors are all in, there will no longer be short covering as there is little available money left.
4...
Insider Selling Spiking: Recent insider trading tilting strongly toward selling is a very bearish signal.
5...
Very Bullish Sentiment: unusually high sentiment indicators measuring investor sentiment typically signals a market top. Remember Sir John Templeton’s legendary quote: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Sentiment is a powerful indicator of where a bull market is in its lifespan, and sentiment improves with age.
Euphoria comes when expectations broadly are too positive and perceptions too rosy.
6...high P/E ratio
7...
Know that when everyone finally concludes things will get better forever, the bull market has now transitioned from mid to late phase.
Media portrays it's readers feelings and when fundamentals deteriorate no one notices (except insiders) until much later when the company reports are released.
8...New Expressions emerge like "new era", "new paradigm", "permanently high plateau", and "end of the business cycle"
9...Paradoxically, future P/E may be low, (due to overly optimistic projections for the next 12-month earnings) ...however trailing P/E and P/E calculated based on averaged earnings over past 3, 5 or 10 years are always high, usually above 20, toward the late phase of the bull market.
10...the overall stock market becomes irrationally exuberant.
11...The most important thing to do in a bull market is to
hold. Don't sell your positions too quickly for a small profit; wait until everyone is finally on board and the economic outlook appears rosy.
12...Watch for the lagging (defensive) stocks that keep rising against the leading (cyclical) stocks that are starting to fall....Defensive stocks are typically those in the Consumer Staples, Healthcare, and Utilities sectors;... cyclical stocks are typically those in the Materials, Industrials, and Financial sectors.
13...Increased number of IPO's ... Entrepreneurs time their IPOs at the peak of the business cycle, to take advantage of investor euphoria to raise as much cash for themselves as possible.
14...the IPO quality gets poorer and poorer toward the end of the bull market.
15...Increased Mergers and acquisitions at this point in the corporate-profit and bull-market cycle when “financial engineering” takes over as a driving theme. Here, corporate productivity is already high, the rapid demand surge after a recession is past and profit margins near peak levels, while financing is cheap and cash piled high at companies and private-equity funds. Transactional ferment raises the corporate metabolism, enforcing discipline on the active use of capital, leading to purchases, sales, aggressive share buybacks, spin offs and initial offerings (IPO's) – tipping, eventually, toward recklessness.
16...Beware of rational optimism.,,,, The switch from rational pessimism during the climbing the wall of worry to that of reasoning why the Bull market will continue.
17...Denial of bad news....use of the “rational” excuse to buy up “cheap” shares
18...A long thaw to reality.
19...A change from Bull to Bear cycle is hard to recognise A market top (or market high) is usually not a dramatic event. The market has simply reached the highest point that it will, for some time (usually a few years). It is retroactively defined as market participants are not aware of it as it happens. A decline then follows, usually gradually at first and later with more rapidity.
20...
A classic indicator that the Fed has tightened too much is an inverted yield curve (i.e., short-term rates higher than long-term rates).
21...
Ref
the daily ticker..
http://finance.yahoo.com/blogs/daily...113902025.html
Money morning..
http://moneymorning.com/2013/03/04/f...o-topping-out/
Seeking Alpha...
http://seekingalpha.com/article/1285...p-questionable
Wikihow...
http://www.wikihow.com/Invest-in-a-Bull-Market
Equities.com
http://editorial.equities.com/financ...-market-cycle/
Before its News
http://beforeitsnews.com/economy/201...t-2496428.html
Wikipedia
http://en.wikipedia.org/wiki/Market_trend
RBA
http://rba-llc.com/pdf/80sBullRedux.pdf
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How to spot a bull market top
by The Investor on June 20, 2013
Veteran UK investor Jim Slater is known for his penchant for high-flying
growth shares. But that doesn’t mean he’s always optimistic.
Slater has lived through many
market cycles in his five decades of investing, and like any great investor he knows that shares go down as well as up.
Back in 2008 I found his
signs of a bear market bottom a useful waypoint in navigating the slump.
But Slater has also shared some tips on
how to spot a bull market top.
Signs of a bull market top
Most of us will do better not to try, but for those who want to have a stab at stock market
prognostication, here are Jim Slater’s signs of the top of a bull market.
Cash is trash
The ‘rubbishing’ of cash and the consequent low institutional holdings are an obvious danger, signalling that most funds will be fully invested.
Value is hard to find
The average
P/E ratio of the market as a whole will be near to historically high levels. The average dividend yield will be low and shares will be standing at a high premium to book value.
Interest rates
Interest rates are usually about to rise or have started to do so. In mid-1995, interest rates in both the USA and UK had been rising from historically low levels. Investors were wondering how much further they would rise before topping out.
Money supply
Broad money supply tends to be contracting at the turn of bull markets.
Investment advisers
The consensus view of
investment advisers will be bullish.
Reaction to news
An early sign of a bull market topping out is the failure of shares to respond to good news. The directors of a company might report excellent results only to see the price of their shares fall. The market is becoming exhausted, good news is already discounted, and there’s very little buying power left.
New issues
Offers for sale, rights issues, and new issues are usually in abundance, with quality beginning to suffer and low-grade issues being chased to ridiculous levels.
Media comment
The press and TV tend to give more prominence to the stock market and to be optimistic near the top. If prices appear high in relation to value, the argument is that ‘it will be different this time’. The few bearish articles that warn of dangers to come are ignored by investors.
Party talk
At the peak of a bull market, shares tend to be the main topic of conversation at cocktail and dinner parties.
Changes in market leadership
A major change in leadership is often a prelude to a change in market direction. Near the top of a bull market, investors often move from safe growth stocks into cyclicals, which they buy heavily.
Unemployment
An interest study by Matheson Securities of ten stock market turning points demonstrated the stock market turned downwards on average about ten months after the unemployment figures began to fall.This is wrong (see ahead of the curve book)
Remember that unemployment is a lagging indicator.
Want to learn more from Jim Slater? Check out his superb guide for small cap stock pickers, The Zulu Principle
.
Originally Posted by JoeGrogan
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