3. How Major Market Tops Form: Part II, The End Game

Major market tops generally form in two phases. The first phase, as discussed in the previous chapter, marks the end of an uptrend and the start of a process of distribution. During the first phase, however, buyers remain active, buoyed by hope the bull market is merely resting. This hope is reinforced by most economic data, which remains upbeat and pointing toward continued growth. Earnings for individual companies remain strong with analyst estimates indicating continued growth for the quarters ahead. But the stock market is a discounting mechanism, with prices based on expectations, not current conditions. Consequently, market tops are not made amid gloomy predictions of a slowing economy ...

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