Key Clues To Find The Next Stock Market Top

By: Chris Guthrie
Published September 19, 2018
03:40 AM GMT





Mark Twain is rumored to have uttered, "history does not repeat itself, but it rhymes." This whole analysis can be a fool's errand, but trends and statistics are great tools in determining future movements. Compilation of large amounts of data will aid in this process. Many people try to time market tops and bottoms, but it is not easy. It is nearly impossible if you do not know what to look for. I have studied the three most recent "major" market drops for clues in identifying the next one. After researching the habits and movements of 100+ stocks, I have identified eight stocks that could be a signal for the next drop. As an options trader, I tend to initially direct my attention to stocks with high option volume.


Technical Analysis Methodology For Next Stock Market Top


I researched all short- and long-term tops for my list of stocks prior to the market declines in 1987, 2000, and 2008. My preferred benchmark index to compare against is the S&P 500 Index. I identified the date of each S&P 500 Index market peak prior to each drop. Prior to the declines in 1987, the index peaked on August 25, 1987. Prior to the declines in 2000, the index peaked on March 24, 2000. The index finally peaked on October 11, 2007 prior to the declines in 2007-2008.


The next goal was to identify stocks that peaked on or before the index dates above. The original list of qualifying stocks was quickly narrowed to eight. One stock, Macy's (M), was not traded during the 1980s, but it was not discounted due to that factor. Next, I calculated the calendar days between the stock's peak and the S&P 500 index peak for the respective downturns. I also averaged all of these results. This provided four data points of days for each stock to potentially identify the next stock market top. All of the stocks below are ordered based on the average number of days they topped before the index did. The index is very close to its peak and all-time record high (achieved August 29, 2018 at 2916.50) at the time of this writing.


Potential Market Top Signal Stocks


Bristol-Myers Squibb Co. (BMY)


This stock peaks 130 calendar days on average prior to the S&P 500 Index. The stock peaked 160 days early in 1987, 147 days early in 2000, and 85 days prior to the market in 2008. This stock experienced its most recent top in February 2018 at 70.05. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this February 2018 top are May 12, 2018, June 26, 2018, July 13, 2018, and 26 July 2018. All of these dates have passed and further analysis will be outlined in the Conclusion section below.


JPMorgan Chase & Co. (JPM)


This stock peaks 215 calendar days on average prior to the S&P 500 Index. The stock peaked 490 days early in 1987, on the same date in 2000, and 155 days prior to the market in 2008. This stock experienced its most recent top in February 2018 at 114.30. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this February 2018 top are February 27, 2018, August 1, 2018, September 30, 2018, and July 2, 2019. Two of these dates have passed and further analysis will be outlined in the Conclusion section below.


Macy's Inc. (M)


This stock peaks 231 calendar days on average prior to the S&P 500 Index. This stock was not traded in the 1980s. The stock peaked 260 days early in 2000 and 202 days prior to the market in 2008. This stock experienced its most recent top in August 2018 at 41.99. I have added each of the three figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this August 2018 top are March 4, 2019, April 2, 2019, and May 1, 2019. None of these dates have occurred yet, however the sample size is smaller than the other stocks outlined in this article. Further analysis will be outlined in the Conclusion section below.


Alleghany Corp. (Y)


This stock peaks 250 calendar days on average prior to the S&P 500 Index. The stock peaked 56 days early in 1987, 625 days early in 2000, and 69 days prior to the market in 2008. This stock experienced its most recent top in March 2017 at 667.19. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this March 2017 top are April 27, 2017, May 10, 2017, November 7, 2017, and November 17, 2018. Three of these dates have passed and further analysis will be outlined in the Conclusion section below.



Comcast Corp. (CMCSA)


This stock peaks 256 calendar days on average prior to the S&P 500 Index. The stock peaked 414 days early in 1987, 88 days early in 2000, and 266 days prior to the market in 2008. This stock experienced its most recent top in January 2018 at 44.00. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this January 2018 top are April 22, 2018, October 7, 2018, October 17, 2018, and March 14, 2019. Only one of these dates have passed and further analysis will be outlined in the Conclusion section below.


J.C. Penney Co. Inc. (JCP)


This stock peaks 296 calendar days on average prior to the S&P 500 Index. The stock peaked 12 days early in 1987, 644 days early in 2000, and 232 days prior to the market in 2008. This stock has been on a drastic decline since 2007. There is no real recent top to analyze from. If the stock peaked recently, it does not have much further to fall before it is worthless. I will not discuss this stock further as it is most likely not a candidate to signal the next market downturn.


Bank of America Corp. (BAC)


This stock peaks 315 calendar days on average prior to the S&P 500 Index. The stock peaked on the same date as the index in 1987, 620 days early in 2000, and 325 days prior to the market in 2008. This stock experienced its most recent top in March 2018 at 30.21. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this March 2018 top are March 12, 2018, January 21, 2019, January 31, 2019, and November 22, 2019. Only one of these dates have passed and further analysis will be outlined in the Conclusion section below.


Campbell Soup Co. (CPB)


This stock peaks 372 calendar days on average prior to the S&P 500 Index. The stock peaked 152 days early in 1987, 732 days early in 2000, and 232 days prior to the market in 2008. This stock experienced its most recent top in July 2016 at 67.89. I have added each of the four figures above to this date to calculate potential timeframes for the final peak of the S&P 500 Index. The resulting dates based off of this July 2016 top are December 5, 2016, February 23, 2017, July 13, 2017, and July 8, 2018. All of these dates have passed. The stock is 40.99% from its 2016 top. I will not conduct further analysis on this stock as it is also an unlikely candidate to indicate the coming market top.


Technical Analysis Conclusion


There are three likely options for identifying the next top based on the acquired data.

1. The top will arrive based on the 12 potential future dates mentioned above.
2. Some of these stocks will reach new tops before the market tops.
3. All of these indicators are invalid and will not determine the next top.



Option 1


If all of the analysis in this article is valid, the market top could occur on or before the 12 dates identified above. Of the eight stocks mentioned, only five (JPM, M, Y, CMCSA, & BAC) still have valid dates yet to occur. All five of these stocks will remain valid indicators if the market top occurs on or before November 17, 2018.


Option 2


Although I ruled out two of the eight stocks while one, BMY, had all of its dates already pass, the five plus Bristol-Myers Squibb (BMY) could acheived new tops before the market tops. Alleghany and JPMorgan Chase are only 4% from their tops mentioned above. It would be more of a stretch for some of the others to acheive a new top before the market as Bank of America (BAC) is 8.59% away from its recent top, Bristol-Myers Squibb (BMY) is 12.23% away, Comcast (CMCSA) is 14.23%, and Macy's (M) is 15.38% away. A new top for any of these could make them solid future indicators for major market tops and subsequent drops. A new top for any of these stocks and a market top close to these dates could also occur.


Option 3


The final option is that my analysis is completely wrong and none of these prior stocks will serve as valid indicators. Although this option is unlikely, it must be considered. This is my counter-analysis option.


My target for the end of the market is quickly approaching based on my other articles and analyses. While avoiding confirmation bias with this article and the others, I am highly confident in my analysis. We are nearing the end of intermediate wave 3. Its end and next short-term market top are imminent as I project this to occur around 2934 by the end of this week or early next week. I have intermediate wave 4 ending around 2841 near October 5, 2018. After that, the final market top should occur between November 1 and November 16, 2018. The final top should occur slightly above 3000. I initially forecasted the top above 3100, but do not see the top occurring higher than 3070. All of these moves can be monitored in the interactive chart below. The white box was one of my more recent projections, but the green box is my current forecasted zone for the top. Regardless, the market top is coming. While it is unlikely for anyone to accurately determine the top date, time and level, I am preparing for the possibility of the end before we ring in the new year.




Disclaimer: I currently do not have any positions in the stocks, funds, or indices mentioned in this article. I may enter a position to ride the market down for the next two weeks, and a long position afterward for the final ride high during the rest of October. This article is for reference only and should not be solely relied on to predict future movement. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. You should not take a risk without fully understanding the system, market, and having established trading discipline. Make sure appropriate research is conducted prior to taking any risk in a marketplace. The author and Limitless Life Skills LLC do not have an interest, outside of the holdings disclosed, or relationship with the companies mentioned in this article.


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