One of the truly amazing features of virtually all investment markets is their tendency to persist in moving in a given direction long past what seems reasonable, and often, beyond most people's wildest expectations. As a result, an upward or downward trend, once established, can continue largely unabated for many years. Examples of long-term up markets were the U.S. stock market in the 90s and the housing market right now. An example of a long-term down market has been Japan's stock market which until recently was in a downward trend for well over a decade.
Anticipating an eventual reversal does appear be a useful way of investing, but you should be extremely conservative if you decide to go "against the tide." To make the assumption that such major changes of direction happen quickly is to vastly underestimate the staying power of a trend once in place.
As a bull market continues, people tend to become more and more convinced subjectively that the assets in question are intrinsically valuable and the harder it is for even a succession of negative events to shake their faith. The same scenario seems to be true for down or underperforming markets, only in reverse; the downtrend often continues far longer than most people expect.
The practical implications:
1. Do not assume that you can predict "the top" when an given investment has been doing well, even for years running.
Some people who are out of stocks simply can't get themselves to get in. And some people who already own stocks cash out too early assuming "the market is over-valued." Such an approach may fail to fully consider the surprising longevity of long-term investment trends. Since no one can fully anticipate these trends which often seem to roll on much further than common sense would dictate, it would seem to be a fundamental error to make your stock or bond fund investing program an all or none thing based on your subjective feeling that a given asset category is overpriced. Thus, no matter how overpriced a given investment might appear, you should never reduce your allocation to zero (unless you are truly ready to be out for good). You need to remain relatively diversified in all major investment classes no matter how high prices within some categories get (or no matter how low).
As a further consequence, for current investors, I suggest you change your allocations to the various major fund categories by no more than maybe 10 or perhaps 15% a year. For example, if your "normal" allocation to stocks is 60%, I would almost never recommend changing it to anything less than 45% or more than 75% in a given year period.
2. Likewise, do not assume you can sense when a given market will hit bottom. Even after several years of falling, an investment can continue falling for several more.
In spite of what some might assert, the movements of the stock, bond, and other investment markets are not essentially governed by mathematical principles, but rather, represent the collective psychological judgments of the participants, either optimistic or pessimistic, as to how much the assets under consideration are worth. People usually do not readily change their way of thinking except when forced to do so by dramatic external events. So it stands to reason that once either a strong degree of either optimism or pessimism is bred, it's likely to stick around for a long time.
That said, there are some guidelines for when to assume a long-term trend is going to reverse itself. You will find information on this topic elsewhere on this site.