Is it really a sign of a top when closed-end funds trade at a premium?

There was an article on Seeking Alpha this morning entitled “Sign of a Market Top? Closed-End Funds Trading at Premium to Net Asset Value“. The article states this is “a phenomenon almost without precedent” and quotes Barron’s columnist Randall Forsyth as saying this is happening for the “first time in my memory”. But as this chart from MarketGauge by DataView LLC indicates, there have been two incidences of this phenomenon since 1998. The closed-end funds traded at a premium for a good part of 2001, halfway through the bear market; and closed-end funds also traded at a premium for most of 2004. The S&P 500 index went on to gain more than 250 points from the end of 2004 to the end of 2006. Based on the data available, I don’t think this is a sign of a top. On the contrary, the limited data available in this chart suggests that the opposite may be true. The closed-end funds were selling at the largest discount to net asset value right at the market top in 2000.