Here’s the sort of thing to be on the lookout for as signs that a top may be approaching in stocks.

The bull market on Wall Street is giving Americans greater
confidence prices can go higher as expectations for stock gains reached
a five-year high in July, a consumer survey said Friday.

Consumers
in July thought that there was a 64 percent chance that a diversified
stock fund would increase in value, up from 54 percent a year ago and a
low of 41 percent in early 2003, according to the Reuters/University of
Michigan Surveys of Consumers.

Of course, that doesn’t mean to sell current positions, or, God forbid, short the market. Just a data point and far more important than the actual number is the building confidence measured year after year. It could takes months or even a year or more to get sufficient retail money into the market to create a top. It was just about a year ago that I observed to a friend that since real estate was on the wane, fund managers are going to do everything possible to keep this market climbing in order to gradually woo that capital into the stock market.

The problem, from the perspective of large investment banks and funds of all sorts is that it’s very difficult to take profits and get out of the market when you’re sitting on billions of capital and hundreds of millions of paper profits. You need someone to distribute those shares to, eventually, and that would be the retail investor. In 1998 and 1999, it was the retail investor driving up the market as people couldn’t get in fast enough.