Good article from the always interesting Greg Morris:
Market tops and market bottoms bring out two very different emotions…. This is where market internals (breadth) really add value to one’s analysis….
As bull markets mature, the calling of tops is part of the game for many. Use a process that keeps all that noise out of your decision making….
The markets climb a wall of worry; they have in the past, they will in the future. We are climbing one now.
But which “market internals” will identify the next important top? In our experience, market breadth gives definitive signals near major bottoms, but more subjective readings near major tops.
There was no clear divergence, for example, ahead of the May 2011 top. In retrospect, the 2011 “correction” was short lived, but a 19% drawdown always feels important in real time.
We suspect that after an eight-year run-up, classic breadth divergence will precede the next bear market. If not, we’ll need to fight a rearguard action.
Figure 1. Wall of worry
Figure 2. Important tops preceded by breadth divergence