How to Identify a Stock Market Top

Today a financial article made the claim that market timing is not possible and the performance of your portfolio depends on luck:

http://finance.yahoo.com/news/One-Big-Thing-We-Dont-Know-nytimes-2119843318.html?x=0&sec=topStories&pos=6&asset=&ccode=

The article correctly mentions that there are very long (20-40 years) periods where stocks do not perform as good as bonds. This information is largely ignored by the mainstream media who likes to present the buy and hold case for stocks.

There are various technical analysis tools that makes it possible to measure the maturity of a rally or a decline so that you may line up the ods in your favor. Buy and Hold definately does not work and it is displayed by example in this decade and in many decades in the past.

It is possible to identify the market trend via simple tools like moving averages. It is possible to identify a tiring market via advance decline ratios. We can suspect a pending crash when we see accumulation-distribution index declining while stocks are advancing. We have successfully used this many times in our latest stock market forcast service:

http://www.tradingstocks.net/html/latest_opinion.html

Daily sentiment index works as a contratrian indicator. For example back in March 2009, only 3% of traders were bullish and that was a bottom. Fast forward to April 2010, we had 92% of traders bullish on S&P 500 and that made us suspect a stock market top. Here are many other technical indicators that scream when stars are lined up to signal a market top:

http://www.tradingstocks.net/html/spot_stock_market_top.html

It is true that there is nothing certain about financial markets. But it is not purely luck. You can use technical analysis to turn the ods in your favor. Markets are probabilistic and if you know what is more likely you can allocate your protfolio accordingly and perform much better than random trades.