Last Wednesday, Federal Reserve Chair Janet Yellen spooked the market when she said “equity market valuations at this point generally are quite high” and that raises “potential dangers.”

This, of course, caused stocks to immediately sell off… but only for about 90 minutes. After that, we saw the markets begin to recover.

My view is that once everyone shook off the surprise statement by Ms. Yellen, it turned out to be “much ado about nothing”.

Ms. Yellen’s remarks came during a conversation with International Monetary Fund Managing Director Christine Lagarde before an audience at the IMF’s headquarters in Washington. Ms. Lagarde asked the central-bank chief about the possibility that the Fed’s rock-bottom interest-rate policy is leading to bubbles in financial markets.

This isn’t the first time that a Fed Chair has made a statement that rocked the markets.

On December 5, 1996, Fed Chair Alan Greenspan asked the question, “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan the past decade?”

The market was closed at the time but the message was received and the Dow gapped down 2% at the opening of the next day.

Once again, the drop didn’t last… in fact the following rally went on for over three years after his pontificating question.

I find it quite amazing that while members of the Federal Reserve may have access to incredible amounts of information and scores of experts to help them interpret it, they most often tend to make statements that defy logic.

Knowing that everyone with any real skin in the game will hang on their every word, they can make ridiculous statements that often make me wonder if there is some ulterior motive.

Don’t get me wrong, I’m far from the fringe conspiratorial type, but I do believe it’s and interesting thought to ponder in your spare time.

Back to Ms. Yellen’s comment, or more appropriately, to the question about stock prices and whether or not things are overvalued… I have written previously about the potential of a top in the markets.

On February 17th in my article Is The Stock Market At The Top? I went over a couple of indicators that I believe were pointing to the fact that we were nearing a top.

Also, more recently, on April 28th in my article A Breakout Or Crash Is Imminent – Which Is It? I made the case that we were on the verge of a move to new highs or poised for a correction in the markets.

We have hit new highs since late April and I do believe that a move below 17,000 for the Dow and below 2,000 for the S&P is much more likely than not.

I have included a year-to-date chart of the S&P 500 below.

Take a look and see if you think we are showing signs of a top in the marked?

Regardless of the reasoning for Ms. Yellen’s comments, you should take advantage of the massive amount of information available on the internet, do your own research and be cautious not to listen to any one particular person (that includes me as well, of course).

Once again, I would suggest protecting any bullish positions you have that you don’t want to get rid of by using put options. Just like insurance for your car or house, they are a small investment to protect you from any serious losses.