“Three Tops and a Tumble”: Leading Topping Indicators

This chapter discusses three indicators that have an excellent record of identifying market tops. The three recurring phenomena that are helpful in forecasting market tops are New York Stock Exchange (NYSE) volume peaks, an inverted yield curve, and consumer confidence tops. When these three indicators top out, the market is usually not far behind. The chapter also introduces another top—housing—that often has an impact on forecasting markets. A flattening or inverted yield curve points to a bear market and a coming recession. It usually leads by some six months on average, but in one-third of the previous occurrences, a bear market had already started, although none was yet defined or recognized by the date of the flattening or inversion. Consumer confidence is important because two-thirds of the American economy is impacted by the consumer. Consumer confidence is highest near market highs and lowest near market lows.