NEW YORK ( TheStreet) -- Since the middle of April everyone and including their grandmother seems to have been building a short position in the equities market and we know picking tops or bottoms fighting the major underlying trend is risky business but most individuals cannot resist.The rush one gets trying to pick a major top or bottom is flat out exciting and that is what makes it so darn addicting and irresistible. If you have ever nailed a market top or bottom then you know just how much money can be made. That one big win naturally draws you back to keep doing it much like how a casino works. The chemicals released in the brain during these extremely exciting times are strong enough that even the most focused traders fall victim to breaking rules and trying these type of bets/trades. So if are going to try to pick a top you better be sure the charts and odds are leaning in your favor as much as possible before starting to build a position. Below are a few charts with my analysis and thoughts overlaid showing you some of the things I look at when thinking about a counter trend trade like picking a top within a bull market. Utility Stocks vs SP500 Index Daily Performance Chart: The SPDR S&P 500 ( SPY)and Utilities Select Sector SPDR ( XLU)performance chart below clearly shows how the majority of traders move out of the slow moving defensive stocks (utilities - XLU) and starts to put their money into more risky stocks. This helps boost the broad market. I see the same thing in bonds and gold this month which is a sign that a market top is nearing. That being said when a market tops it is generally a process which takes time. Most traders think tops area one day event but most of the times it takes weeks to unfold as the upward momentum slows and the big smart money players slowly hand off their long positions to the greedy emotion drove traders.
Look at the chart below and notice the first red box during September and October. As you can see it took nearly six weeks for that top to form before actually falling off. That same thing could easily happen again this time, though I do feel it will be more violent this time around.
With over 8000 public traded companies, exchange traded funds, options, bonds, commodities, futures, forex, currencies etc... to pick from its easy to get overwhelmed and just start doing more or less random trades without a proven, documented rule based strategy. This type of trading results in frustration, loss of money and the eventual closure of a trading account. During this process most individuals will also lose friends, family and in many cased self-confidence.
Also I would like to note that I do follow the index futures and volume very closely on both the intraday and daily charts. This is where the big money does a lot of trading. Knowing when futures contracts are being sold or bought with heavy volume is very important data in helping time tops and bottoms more accurately. And the more experience you have in trading also plays a large part in your success in trading tops and bottoms. At the time of publication the author held no positions in any of the stocks mentioned. Get Chris Vermeulen's Trade Alerts at: TheGoldAndOilGuy.com Follow @TheTechTraders This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.