"Today the market shows many of the elements that are
present near market tops. In particular, sentiment is extremely bullish,
investors are long and leveraged, and valuations are extended on a wide variety
of measures. However, leading economic indicators are still not negative, and
so far breadth and technicals have not deteriorated. The medium-term stock
market returns are likely to be negative due to excessive valuation, but there
is no imminent sign of a medium-term market top.
Tops are a process, not a single event. They tend to last a
long period of time, and markets whipsaw traders and disappoint bears and short
sellers. For example, many signs of a market top were clearly visible in late
1998, but it was not until the end of 2000 that most major market indices
started to collapse. Likewise, many elements of a market top were evident in
late 2006, but markets didn’t begin to collapse until very early 2008. "
