The Best Short-Selling Opportunity of the Year

The Best Short-Selling Opportunity of the Year
By Jeff Clark
May 5, 2009

Traders were ducking champagne corks on Wall Street yesterday. The S&P 500 closed in the green for the first time this year. Stocks have erased the 26% loss suffered during the first 10 weeks of 2009 and are now up 0.6%.

Yippee. Let the celebration begin.

Sadly, I left the party a couple weeks ago, when the S&P crossed over 855. Worse yet, I started slowly building short positions. So while everybody else was letting the good times roll, I was feeling a bit like a nun strolling through a brothel.

It is difficult to be cautious as stock prices race to the sky. After all, no one wants to be the lone teetotaler at a fraternity kegger party. But traders should worry about the aftermath.

The best parties are often followed by the worst hangovers. The trick, of course, is to leave before everyone strips naked and jumps into the pool.

We're nearing that point.

Wall Street is ignoring them, but there are plenty of warning signs. For example, two weeks ago, I shared with you a chart of the Nasdaq Summation Index, which was perilously close to a sell signal. I also told you the story of Fran the Taco man, who had a horrible track record of investing and had just turned bullish.

Insiders are selling stock at the fastest pace in two years. The CBOE put/call index – a freakishly accurate contrary indicator – is now at a frighteningly low level. And as you can tell from the following chart, 91% of the stocks in the S&P 500 are now trading above their 50-day moving averages...

S&P 500 % Above 50 M

Previous readings this high have preceded brutally sharp selloffs.

Stocks are overbought right now. That's clear. And there are times where extremely overbought markets get even more extreme. It looks like we're now in one of those times. So the market can still work its way higher.

Buying into these conditions, however, is rarely a smart move. The risk/reward weathervane is blowing strongly in the direction of risk. In fact, we're rapidly approaching the best short-selling opportunity of the year.

Stocks Are Dangerously Close to a Big Sell Signal

A Sell Signal You Won't Hear About Anywhere Else

So while everyone else is dancing with lampshades on their heads and celebrating the 0.6% gain in stocks this year, smart traders are preparing for the next big move.

It'll be to the downside.

Best regards and good trading,

Jeff Clark

P.S. If you'd like to get in on my latest round of ideas to profit from the coming correction, consider signing up for the S&A Short Report. I think a slam-dunk shorting opportunity is at hand... and the profits on one particular trade will more than pay for your subscription. You can click here to learn more.

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•	Taiwan Semiconductor up 95% since November... industry giant Intel breaks out to new six-month high.
•	Hong Kong index up 42% from March bottom... triple-digit gains are possible.
•	Secondary education crumbles... DeVry falls 5% to a new 52-week low.
•	Earnings today... ADP, Duke, Genomic Health, Kraft, Molson Coors, Walt Disney.

	Last	Change	52-Wk
S&P 500	907.24	+3.39%	-35.83%
Oil (USO)	30.56	+3.17%	-67.28%
Gold (GLD)	88.64	+1.94%	+4.80%
Silver (SLV)	12.83	+4.23%	-21.08%
U.S. Dollar	87.95	+0.24%	+19.30%
Euro	1.34	-0.22%	-13.63%
VIX	34.53	-2.18%	+89.93%
HUI	320.85	+6.47%	-19.70%
10-Year Yield	3.16%	-0.01	-0.57

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Company	Sym	Industry
3Com	COMS	networks
KBL Healthcare	KHA	acquisitions
Macrovision	MVSN	digital distribution
Seneca Foods	SENEA	fruit processing
Capitol Acquisition	CLA	acquisitions
Insmed	INSM	pharma
Mercury Computer	MRCY	digital processing
Pervasive Software	PVSW	security software
Youbet	UBET	online wagering
Cerner	CERN	health care
Hawkins	HWKN	chemicals
Loral Space	LORL	broadcasting
Orion Marine	OMGI	construction
Taiwan Semi	TSM	semiconductors
Broadpoint	BPSG	broker
Corriente	ETQ	mining
Longtop Financial	LFT	bank software
Inergy Holdings	NRGP	propane supply
Int'l Tower Hill	THM	mining
ChinaCast	CAST	e-learning
Great Southern	GSBC	bank
Limelight	LLNW	digital distribution
NuStar Energy	NS	oil & gas pipelines
Orchids Paper	TIS	tissue paper
Big 5	BGFV	sporting goods
SP Acquisition	DSP	acquisitions
Lancaster Colony	LANC	consumer prod
National Presto	NPK	consumer prod
Siliconware Precision	SPIL	semiconductors
Critical Therapeutics	CRTX	pharma
KongZhong	KONG	cell phone media
National Bankshares	NKSH	bank
Steak n Shake	SNS	restaurants

Company	Sym	Industry
Magellan Health	MGLN	health care
ManTech	MANT	network security
DeVry	DV	secondary edu
Alumina	AWC	aluminum
CardioNet	BEAT	health care

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