jnafach
74 posts
msg #74256
- Ignore jnafach |
5/8/2009 8:38:03 PM
This is part of article I read I thought would be interestingThe bear-market rally of the past two months has done exactly what it was supposed to do. It has gotten everyone excited about jumping back into the stock market just in time for the bear to take another swipe at it.
Let me explain...
Two months ago, everyone was bearish. Stock prices had fallen for several consecutive months. The talking heads on the financial news shows were nearly suicidal. Just about everyone I know wanted to short stocks. Yet nearly all my technical indicators were oversold and ready to turn higher.
Today, it's the opposite.
Almost everyone is bullish. The S&P 500 just turned positive on the year. The talking heads are giddy with excitement. Everyone wants to know what to buy next. And nearly all my technical indicators are viciously overbought and ready to turn lower.
We haven't had this sort of low-risk setup for short selling since the bear market started in January 2008.
Of course, back then, no one knew what we were in for. Oh sure, we were ready for it as the S&P 500 dipped below its 20-month exponential moving average (EMA) and kicked off a bear market. But the severity of the decline was more than anyone could have expected.
The rally off of the bottom in March has been equally severe.
It's not time to sell short anything just yet. There's still room for more upside as the S&P remains below its 20-month EMA...
The ideal place to sell short is when the monthly chart of the S&P 500 comes within spitting distance of its 20-month EMA.
Frankly, though, by the look of so many other technical indicators, I don't think we'll get there. Instead, we're probably just a day or two away from a major sell signal.
Take a look at the following charts of the Nasdaq Summation Index and the NYSE Summation Index...
The blue arrows on these charts point to previous sell signals from these indicators. After each signal, the overall stock market saw a swift and severe decline.
These indicators are now on the verge of another major intermediate-term sell signal, and it should happen within the next day or two. When it triggers, we'll be ready to load up on the short side. But it's premature to do so right now.
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