Are You Done Looking For A Stock Market Top?

After the market bottomed at the 2330SPX support we noted weeks ago, it has continued higher towards our ideal target at 2410SPX on Friday, after spending the week in a sideways consolidation.

If you are done looking for a market top, well, so are many other bears. After this past week's move (which we called for), more and more bears are waving the white flag. And the reason, which amuses me the most, is that they are claiming that "the fundamentals now support a higher S&P 500."

As I have warned many times in the past, market fundamentals are a lagging indicator. I have explained it in great detail in prior articles:

When people begin to turn positive about their future, they are willing to take risks. What is the most immediate way that the public can act on this return to positive sentiment? The easiest is to buy stocks. For this reason, we see the stock market lead in the opposite direction before the economy and fundamentals have turned. In fact, historically, we know that the stock market is a leading indicator for the economy, as the market has always turned well before the economy does. This is why R.N. Elliott, whose work led to Elliott Wave theory, believed that the stock market is the best barometer of public sentiment.

Let's look at the same change in positive sentiment and what it takes to have an effect on the fundamentals. When the general public's sentiment turns positive, this is the point at which they are willing to take more risks based on their positive feelings about the future. Whereas investors immediately place money to work in the stock market, thereby having an immediate effect upon stock prices, business owners and entrepreneurs seek loans to build or expand a business, which takes time to secure.

They then place the newly acquired funds to work in their business by hiring more people or buying additional equipment, and this takes more time. With this new capacity, they are then able to provide more goods and services to the public, and, ultimately, profits and earnings begin to grow - after more time has passed.

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net ( more

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Moon Kil Woong 1 year ago Contributor's comment

Rather than look at a top one should look for when the market looks to be deflating. This will occur after initial weakness which isn't apparent as of yet. One should be aware however that the economy isn't fully reflected in the market which continues to limp along and is why this market is hated. It is pumped up on Federal Reserve stimulus which has moved money from bonds to riskier assets.