Sell Now

Sell Now
By Jeff Clark
July 27, 2010

We kicked off the month of July with a brand new bear market.

On June 30, the monthly chart of the S&P 500 closed below its 20-month exponential moving average (EMA) – which signals a bear market and tells investors it's time to sell.

At the time, however, I cautioned stocks were wickedly oversold. The market usually bounces hard at the beginning of a bear market. So I figured we'd have a better selling opportunity in a month or so.

Well, it hasn't quite been a month, but now it's time to sell. The S&P 500 is up 9% in July. Investor sentiment, which was bordering on fatalistic, is now bullish. The Volatility Index – a measure of fear in the marketplace – is at its lowest level in three months. And the percentage of stocks trading above their 50-day moving average has rocketed from a low of 6% at the end of June to 74% yesterday.

We're not oversold anymore. In fact, we're overbought.

If you were thinking about selling at the end of June but held off in hopes of getting a bounce, you now have that bounce. Holding on any further is risky business.

Take a look at this updated monthly chart of the S&P 500 plotted against its 20-month EMA...

The red circles indicate bear-market signals. In the previous two examples, you can see how the S&P 500 rallied back to test the 20-month EMA from below before suffering a serious decline.

The rally we've experienced so far in July has actually pushed the S&P 500 back above the line. Keep in mind, though, this is a monthly chart. All that matters is how the S&P looks at the end of the month. If the S&P closes Friday above the line, the bear-market signal is canceled and we're back in bull mode. That sort of whipsaw action, however, is rare on a monthly chart. We haven't seen a false signal on this chart since 1990.

It seems more likely stocks will fall over the next few days and the S&P 500 will finish out the month below 1,085... and below the 20-month EMA.

That'll keep the bear-market signal alive and open up the possibility of a significant decline in August and September.

How to Trade a Bear Market

Turn and Run the Other Way

In other words, the S&P 500 could drop 25 points in the next few days. And that decline could presage a huge drop this fall.

Now looks like a pretty good time to sell.

Best regards and good trading,

Jeff Clark

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•	Giant gold fund GLD and giant gold-miner fund GDX both down 5% in July.
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Symbol	Price	Change	52-Wk
S&P 500	1115.01	1.12%	13.86%
Oil (USO)	35.35	-0.11%	-2.40%
Gold (GLD)	115.52	-0.49%	23.67%
Silver (SLV)	17.78	0.34%	30.16%
U.S. Dollar	81.96	-0.13%	4.24%
Euro	1.30	0.26%	-8.51%
Volatility (^VIX)	22.73	-3.15%	-1.56%
Gold Stocks (^HUI)	447.33	-1.00%	23.88%
10-Year Yield	2.99%	0.00	-0.68

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Symbol	Price	Change	52-Wk
Mexico (EWW)	51.69	0.72%	29.81%
Singapore (EWS)	12.24	1.24%	25.33%
Brazil (EWZ)	69.24	-0.33%	25.24%
South Korea (EWY)	49.56	1.45%	24.83%
Australia (EWA)	21.61	1.41%	23.60%
South Africa (EZA)	61.20	1.69%	23.54%
Israel (ISL)	14.40	1.19%	16.41%
USA (SPY)	111.56	1.04%	15.47%
Taiwan (EWT)	12.44	1.06%	12.96%
Canada (EWC)	26.58	0.72%	12.64%
India (IFN)	31.74	-0.16%	3.73%
Japan (EWJ)	9.59	0.10%	0.07%
China (FXI)	41.37	-0.22%	-0.46%
Russia (TRF)	18.47	0.87%	-8.79%

Symbol	Price	Change	52-Wk
Real Estate (IYR)	52.02	2.58%	56.17%
Media (PBS)	12.36	2.23%	32.35%
Transportation (IYT)	80.98	2.77%	29.19%
Industrials (IYJ)	56.90	1.64%	28.99%
Basic Mat (IYM)	60.40	0.68%	26.43%
Consumer Svcs (IYC)	58.29	1.23%	24.45%
Defense (PPA)	17.52	1.69%	24.07%
Software (PSJ)	22.19	1.28%	23.48%
Financials (IYF)	53.25	1.70%	20.91%
Insurance (PIC)	14.94	1.22%	20.58%
Big Tech (QQQQ)	46.44	0.83%	18.70%
Telecom (IYZ)	20.43	1.34%	16.51%
Biotech (PBE)	18.39	2.85%	14.91%
Retail (PMR)	17.06	1.97%	14.59%
Semis (PSI)	13.78	1.85%	13.78%
Internet (HHH)	52.90	0.15%	12.81%
Utilities (XLU)	30.70	0.72%	7.29%
Health Care (IYH)	59.60	1.62%	6.15%
Water (PHO)	16.44	1.86%	6.10%
Big Pharma (PPH)	60.36	1.24%	4.30%
Construction (PKB)	12.30	3.10%	3.94%
Oil Service (OIH)	105.85	1.01%	0.51%
Nanotech (PXN)	9.00	3.45%	-4.56%
Alt. Energy (PBW)	9.61	2.56%	-9.68%

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