Be bearish when everyone is bullish. Be bullish when everyone is bearish.
Simple advice, but extremely difficult to be counter intuitive and overrule our instinctive behaviour to run with the herd.
Currently every single class of investor is wildly bullish (bitcoin is a classic example of the prevailing market mania). Institutional managers hold record low levels of cash relative to stocks in their portfolios. The number of bullish investment advisors is the highest in 40 years (II). Options speculators are the most optimistic toward the market rising in almost 4 years (CBOE equity p/c ratio). Mutual fund investors have poured a record amount of money into bull market funds relative to bear market funds (Rydex series). Retail investors have allocated the highest percentage of their portfolios to stocks relative to cash since 2000 (AAII) - just prior to the dotcom crash. Equity speculators now have the highest level of margin debt in history. Stock traders are now 95% bullish the market, the highest level of optimism since late 2007 - just prior to the onset of the GFC.
When the final bears finally capitulates to the prevailing trend and join the bullish herd, you know we are near a top.
