Everyone knows that stocks these days, especially US stocks, are overvalued. But picking a market top is no easy matter. David Aronson, former professor at Baruch College,now president of a research firm that develops methods to enhance stock market trading systems, says, "the process of topping out can take a really long period of time, evolving over a year or more." Aronson demonstrated his credentials as a two-armed economist when he told Mark Hulbert of the Wall Street Journal.that only time will tell whether the coming top will precede a major bear market or something less dire, something of merely "intermediate-term significance." (See The Myth of Stock-Market Tops," September 5, 2017, p. . R1).
Admirers of Sergio Leone's masterpiece Once Upon a Time in America know that the character named David Aaronson, played by Robert de Niro (top left), bears the nickname "Noodles" from the time he and his buddy Maxie were the most notable personalities of a gang of Jewish teenagers in New York's Lower East Side in the early decades of the twentieth century.
Noodles remains "overweight" on emerging-market equities. as well as overweight in the old-fashioned sense, as befits a man of his mature years who has done his share of losing, done what he had to do and now finds it all so amusing to think he did all that . "All that" includes knifing a vicious rival, for which act he serves time. He has fallen hopelessly in love with Deborah (played by Jennifer Connelly as a youth [top center] and by Elizabeth McGovern as a grown up [top right]). She is his one true love, yet, alas,he date rapes her in the back of a rented limousine. He has also smoked his share of opium with the song "Amapola" in his brain, cried in his sleep, carried on with Tuesday Weld, a decoy during a jewel heist, and teamed up with "Uncle" Maxie (James Woods) and buddies to smuggle booze during prohibition and run a fabulous speakeasy,
Thirty years have gone by in some remote upstate burg after his gang buddies are shot in one fatal last caper. During this time, and prior to mysterious letters that lead him to return to New York City and learn that he had been deceived and betrayed, David Aaranson has had the opportunity to make an independent study of stock market trends. In the book that made his academic reputation, Aaranson writes that "bottoms are easier to identify, in real time, than tops." When asked whether he had in mind either Jennifer Connelly or Elizabeth McGovern, Noodles just winked.
The take-away: Major bull market tops are a process, not an event. The long-term topping process may have begun without anyone taking note. Many people have shunned the market since the 2008-09 collapse. Only when they start buying stocks will we know for sure that the long-awaited end has come. Will there be a correction -- or a crash? How painful will it be? The jury is still out..Meanwhile when they ask me what the market will do tomorrow, I always say: it will fluctuate -- DL