Zbigniew Piekarski warns of premature optimism at index highs.

If you believe everything you read, then you'd better not read.

- Japanese Proverb

After 13 weeks of sideways movement, the major indexes have broken through on the upside and are now set for new yearly highs. We calculate that the S&P 500 may even attain 1066, if it passes the initial resistance of 1055. Although the Nasdaq is very overbought if it manages to pass 1385, it is destined to peak somewhere around the 1415-1430 area. Moreover, if the Dow Jones Industrial Average follows the other indexes, then its final resistance should be 9930, a 78.6% retracement of the decline from March 2002.

The final topping process should be complete by the third week of September, when the fifth wave upwards will end and a correction will follow. The secular bear trend will resume, but with a far more determined stride than before.

Over the past few months, optimism has reached levels that have surpassed even those of August 1987 and March 2000, just before severe declines occurred. The media has reflected this mood, and is encouraging the public to invest. Last month's Reader's Digest announcing, "It's Time to Catch the Next Wave" is probably sufficient reason alone to call for a reversal.

Cover stories about the market tend to occur at points near the market's top or its bottom. By the time magazines are featuring "bullish" covers, the market is set to top out. Conversely, by the time you see magazine covers featuring scary pictures of bears, the market is almost certainly at or near bottom.

A study of 80 years of Time covers shows that "bearish" covers usually ran 30 days before the market turned higher. "Bullish" covers ran about the same length of time before the market went south. In real terms, that means it's a good idea to act in a manner contrary to the magazine covers, but not to do so immediately. Wait about one month - and then move.

Time magazine isn't alone. Newsweek and Business Week have the same track record of accomplishment. In late 1974, near the end of the 1973-1974 bear market (the worst since the Great Depression), Newsweek ran a cover story titled "The Big Bad Bear." The cover depicted an angry bear with NYSE pillars crumbling on either side of him and a sign showing Wall Street as a one-way street going straight down. What happened? Stocks shot up - about 50 percent in two years.

In late 1979, Business Week ran its now famous "Death of Equities" cover, practically predicting the end of Wall Street as we knew it. But if an investor had spent the ensuing 20 years doing the exact opposite of what that cover suggested, they would have become rich.

For intelligent investors, this phenomenon is not news. It's pretty much accepted - not only in stocks but also in bonds and real estate, and in every other investment field - that by the time everybody's talking about an investment, it's time to sell. That when everybody else is bearish, it's time to buy.

And yet a new generation of investors always falls for the same old "clap trap", firmly believing that "this time it will be different" - and that is why the fifth wave that we are about to experience happens.

Investors who know the history of the market will tell you that the period from 1960 to 1980 was a "traders" market. You could only make money by timing the market and consolidating profits as and when they occurred.

From 1980 to 2000, "buy and hold" was the strategy to adopt. The market was in a secular "bull" mode and even institutions made money through "long term" investments.

Now we are back to "trading" again, and this will be the only way for the next 17 years at least. Those who invest "for the long term", including financial institutions, will have their assets decimated. If you believe that you have the qualities to be a "trader", or want to know more about the potential that trading offers, then e-mail me at: GPM.bipnet.pl as I am looking for exceptional and talented individuals to join me in a quest for riches.

On the WSE: I know that Poland is a wonderful country with many exceptional and gifted people, and that it has a potentially economically rewarding future. But even here, in the land of miracles, trees do not grow to reach the sky, nor do white eagles fly with a crown on their heads. Nature's laws will be obeyed, and the gaps to the downside will be filled.