Davis' Tips for How to Identify a Market Top

How do you identify times when the stock market is nearing a top? Ned Davis of Ned Davis Research uses several metrics, and, right now, on balance, they’re indicating the bull market has more room to run.

“There are a number of things about this market that concern me as a risk manager,” Davis recently said, according to MarketWatch’s Mark Hulbert. But, overall, Davis says he “leans bullish” for the time being.

Davis, Hulbert notes, uses four main indicators to assess whether the market is nearing or at a top. They are:

  • Valuation, which right now is giving a mixed message depending on which valuation metric you look at;
  • Sentiment, which according to Davis is quite high and the most bearish indicator right now;
  • Market Breadth, which is the most bullish of the four indicators right now;
  • Interest rates, which Davis’ firm says are providing cause for concern but aren’t yet outright bearish.

All in all, Hulbert says that Ed Clissold, Davis’ Global Equity Strategist, concludes that though there are some worrisome signs on the horizon, his firm is giving the bull the benefit of the doubt.

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