There is always something to remember regarding the tops and bottoms of markets – they are the most gut-wrenching volatile periods where there are fortunes to be made buying and selling.
The markets over the past three months have mostly been a slow ascent upwards, but lately the sentiment has changed where “cash is trash” and you are starting to get retail into the woodwork – typically a huge yellow flag.
What the natural progression in these market cycles are is that retail will get involved to the point where every Joe and his/her neighbour will have to get into the equity side of the market because so many people around them are making too much money in the stock market. This is like shades of what happened in 1999 and early 2000 before the whole market collapsed during the Internet bubble collapse.
I’m not saying the market is bubbly – in fact, valuations are relatively reasonable (e.g. the two largest components, Apple and Exxon are trading at surprisingly reasonable valuations) but in order for there to be a top, expectations need to be at a maximum. I simply do not see the expectations to be at a maximum quite yet, and thus we will likely have more volatile trading that has an upward ascent.
Things are likely to get a little more exciting in the next few months.