A key warning sign of a market top is low correlation, where different indices (e.g., NASDAQ, S&P 500, Russell 2000) peak at separate times. This indicates that capital is rotating from exhausted leaders to laggards in a final, desperate search for returns. When this rotation ends, the next likely move is a broad, correlated decline.

During periods of intense market euphoria, investors with experience of past downturns are at a disadvantage. Their knowledge of how bubbles burst makes them cautious, causing them to underperform those who have only seen markets rebound, reinforcing a dangerous cycle of overconfidence.

A long bull market can produce a generation of venture capitalists who have never experienced a downturn. This lack of cyclical perspective leads to flawed investment heuristics, such as ignoring valuation discipline, which are then painfully corrected when the market inevitably turns.

Veteran investor Jim Schaefer notes a recurring pattern before recessions: a massive, euphoric movement of capital into a specific area (e.g., telecom in 2001, mortgages in 2008). This over-investment inevitably creates systemic problems. Investors should be wary of any asset class currently experiencing such a large-scale influx.

Calling a market top is a technical exercise, as fundamentals lag significantly. A reliable sell signal emerges when the market's leadership narrows to a few "generals." When a critical number of these leaders (e.g., three of the top seven) fall below their 200-day moving average, the rally is likely over.

A market enters a bubble when its price, in real terms, exceeds its long-term trend by two standard deviations. Historically, this signals a period of further gains, but these "in-bubble" profits are almost always given back in the subsequent crash, making it a predictable trap.

Market participants are conditioned to expect a dramatic "Minsky moment." However, the more probable reality is a slow, grinding decline characterized by a decade of flat equity prices, compressing multiples, and degrading returns—a "death by a thousand cuts" rather than one catastrophic event.

Current market bullishness is at levels seen only a few times in the past decade. Two of those instances led to corrections within three months. This euphoria, combined with low volatility and high leverage, makes the market vulnerable to even minor negative news.

Contrary to intuition, widespread fear and discussion of a market bubble often precede a final, insane surge upward. The real crash tends to happen later, when the consensus shifts to believing in a 'new economic model.' This highlights a key psychological dynamic of market cycles where peak anxiety doesn't signal an immediate top.