5 signs a market is topping out

Fsp Invest, 25 Oct. 2013

Tags: market, signs a market is topping out, market signs, volatility, debt, valuations

It is a painful learning experience when you invest in a booming market at just the wrong time, right before they go into reverse gear. But there are some signs you can look out for that can indicate that a market is topping out and about to fall. Read on to discover five signs a market is topping out…

It’s best to avoid timing markets and it’s always challenging, Carl Delfeld in Investment U explains…

Sometimes it is pretty clear that the momentum of a market is tapering off. This is a good time to lock in gains, reduce exposure and tighten trailing stop losses.

Indications that market is about to fall

Here are five signs that a market may very well be topping out…

#1: Increased volatility
All markets bounce around a bit and suffer periodic pullbacks. But when you see an increase in choppy trading without a clear uptrend, the yellow lights should start flashing.

#2: High relative valuations
The question you should always be asking regarding valuations is “compared to what?”

For example, to say a stock is trading at 20 times earnings doesn’t mean much. But if Chile’s stock market is trading at 22 times earnings and Brazil’s is at 12 times earnings and in an uptrend, lean hard toward Brazil.

#3: Rising debt
When deals are getting done in a particular sector or country that’s home to more and more debt, it is a sign that bank credit standards are weakening. High corporate debt means higher risk and less room for mistakes.

#4: Constant media attention
When a market is constantly in the headlines and gurus are frequently touting it in the financial media, caution should reign. It is far better to have absolutely no one talking about an idea or market.

#5: Small-cap surge
Most bull runs start with the largest, most liquid companies and end with a small-cap surge.

So there you have it, five signs a market is topping out.

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