How does a retail trader know when prices in the stock market are at an extreme level?

Very simply, when the price for utility stocks are extreme. When prices for water, power and gas companies are just, well, crazy! The other characteristic is to look at market leaders, to see if very high volume is present when prices charge into all-time highs. This high volume represents the composite man selling to those who are very late to the party.

Who is the composite man?

Richard Wyckoff definition…"all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.”..

You may notice when making a call on the stock market, one refers to the stock market at not economic stats or FED actions for the simple reason the stock market must be judged by its own actions. Price and volume action clearly shows if the composite man releasing stock float to the public (or those very late to the party), and as the composite man is judged to be the informed money the retail trader would be wise to heed their actions.

The Dow Jones Utility stock index is near the long term upper channel, a reach to $850 would attract heavy selling and a top is very likely.

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Here is an example of a leading market leader attracting selling by the composite man, the retail investor should read the tea leaves and understand that the smart money is selling down stock float inventories.

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