Market tops are THE most frustrating time to be a sensible investor. Common sense and analysis tell you that the market is out of control and running on thin ice… but as investing legend John Templeton put it, “the market can stay irrational a lot longer than you can stay solvent.”

Indeed, tops are only formed after periods of prolonged irrationality. And once you attain a state of mania (a time when stocks are completely detached from reality) even minor announcements (or outright bearish announcements) can be spun to look bullish and help stocks eek out a few more percentage gains.

Consider today’s market for example. Over the weekend, China and the US announced an informal trade war (each country placing tariffs on the others’ exports). This is HORRIBLE for the economy and stock market (it’s also an eerie repeat of the ‘30s situation in which a trade war prolonged and protracted the Depression). And yet… stocks managed to rally on Monday because President Obama presented a speech to Wall Street executives about “doing the right thing.”

Let’s consider this for a moment. The impact of an actual economic reality that is HORRIBLE for stocks was eclipsed by a political figure (who’s failed to reform anything) lecturing the perpetrators of the biggest Financial Crisis in history on reform. This would be hilarious if it weren’t real.

Now, market tops are typically marked by desperation, meaning that market participants become desperate to cling to the “bull” story in the face of worsening realities. This desperation involves:

• Virtually any and all news is being spun to sound positive.
• Negative economic realities being hidden by accounting gimmickry and adjustments.
• Negative news articles being buried on the back pages of financial journals.
• Negative economic announcements being released after the market closes or on weekends to mitigate the impact.
• A major political figure announcing that danger no longer exists or that things will continue to be positive for as long as one can forecast.
• The average uninformed investor believing that things have “recovered” or “changed” to the point that downward risk no longer exists.

This defines today’s market action to a “T.” Every announcement played