It's Finally Time to Get Short

"This can't be good."

 

The bullish percent index for the Nasdaq composite generated a sell signal last week. So the path of least resistance is now lower.

 

Take a look...

 

 

This bullish percent index displays the percentage of Nasdaq stocks trading with bullish technical patterns. It's a momentum indicator used to measure overbought and oversold conditions. Buy and sell signals occur when the index crosses over or under its 20-day exponential moving average (the blue line).

 

 

The circles on the chart show the previous three sell signals and the recent crossover.

 

You can see how they played out on the following chart of the S&P 500...

 

 

 

All three of the previous Nasdaq bullish percent index sell signals preceded sharp declines in the S&P 500. So the sell signal generated last week is a warning sign stocks may be on the verge of a sharp correction.

 

Of course, no technical indicator is infallible, and no one should make investment decisions on the basis of just one chart pattern. But when you look at all of the indicators we've covered in Growth Stock Wire over the past several weeks – and when you consider the shaky underpinnings of the stock market and the overall economy – this is a pretty good sign caution is in order.

 

In fact, it makes sense to be more than just cautious. It makes sense to be bearish.

 

Back in February, I cautioned against selling stocks short. The market had sold off hard for several months. And too many people were looking for ways to profit on the downside of stocks.

 

Crowded trades are rarely a good idea. 

 

Today, we have the opposite situation. Stocks have rallied for several months. Nearly everyone is looking for the next great stock to buy. And no one is interested in selling short anymore.

 

Given the recent sell signal from the Nasdaq bullish percent index, a few well-placed short sales could pay off over the next few weeks.

 

Best regards and good trading,

 

Jeff Clark

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