How to Call a Market Top

Since it’s impossible to know the future, we need to make educated guesses by looking for repetition in securities markets past.

At Seeking Alpha, Joseph Stuber admits that “it is almost impossible to call a high in a bull market” and turns his focus on chart patterns that may better the odds of calling a top.

In doing so, he shares three charts he uses to get a feel for what the near future may bring by measuring the price performance of SPY, the exchange-traded fund that channels the Standard and Poor’s 500 Stock Average.

For myself, I prefer MACD charts as indicators of the market’s direction. They show the odds-on tops and bottoms of both market indexes and individual stocks and funds.

For a detailed and illustrated explanation of MACD, with examples, go to:

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve?utm_source=AdCenter&utm_medium=CPC

For MACD assessments, I do my charting at Yahoo!

My 5-year MACD chart at Yahoo shows the recovery of the total stock market (VTI) and the accompanying deterioration of GRZZX, the best inverse no-load mutual fund I know. At the bottom of the chart you’ll see the MACD chart and how it measured the 2008-2009 stock-market collapse and the ups and downs of VTI ever since. See:

http://finance.yahoo.com/q/ta?s=VTI&t=5y&l=on&z=l&q=l&p=&a=m26-12-9&c=GRZZX

The RSI section at the bottom of the GRZZX performance chart confirms buy-signal low points in May 2013 and again in mid-July. For an explanation of RSI, go to:

http://blogs.stockcharts.com/scanning/2010/03/rsi-overboughtoversold-scan-chk.html?st=rsi

In my 3-month performance chart, you’ll see the GRZZX gain in May and June 2013 of GRZZX and the bullish bounce back of VTI since the end of June. That’s when the crossover pattern of GRZZX  signaled a probable recovery by VTI.

Now, my 3-month chart shows VTI is at the very edge of a sell signal and its RSI companion is well into sell territory.

http://finance.yahoo.com/q/ta?s=VTI&t=3m&l=on&z=l&q=l&p=&a=m26-12-9&c=GRZZX

How much credibility should we give MACD and RSI? Well, they’re indicators, not forecasts or promises. They confirm merely that it’s time for each of us to decide on our own whether or not to buy or sell or hedge.

As we all know, no one can know what the future will bring—and that we can only guess.

MACD and RSI give us nothing more than educated guesses—and that’s as good as it gets.