Why it’s finally time to get short
Last week, I warned my colleagues over here in Baltimore that even though we were seeing multiple SELL signals from many technical indicators, it was still too early to get aggressive on the short side. Buyers were too willing to jump in on any sign of weakness and keep upward pressure on stock prices.Patience was the name of the game last week. This week, patience paid off.
The Dow Jones Industrial Average is 116 points higher. The S&P 500 is up 14 points. The Nasdaq composite gained a whopping 50 points. The Nasdaq 100 tacked on 49. And the put options I was looking at purchasing last week are 50% cheaper today. A large part of the reason I stayed away from the short side last week – indeed for most of the past month – has to do with CNBC. The analysts that appear on CNBC provide an excellent measure of investor sentiment. While most analysts claimed to be bullish, they hedged their opinions with something like, “... we may see some weakness in the short term...”
I, too, have been looking for some weakness in the short term. Apparently, so has everyone else. And if there’s one thing I’ve learned after playing this game for more than 20 years, it’s that whenever my opinion is mainstream, my opinion is wrong.
So despite the sell signals from the Nasdaq Summation Index (NASI) and the Nasdaq Composite Bullish Percent Index (BPCOMPQ), and despite the ridiculously low level on the Volatility Index (VIX), and despite the underperformance of the semiconductor index (SOX), and despite the massive amounts of insider selling, and despite my overwhelming conviction that the market was headed for a correction, I held off going short the market.
Until yesterday.
Yesterday, CNBC could have aired an all-day video of the annual “Running of the Bulls” ceremony in Pamplona, Spain, and it still wouldn’t have matched the amount of bullishness coming from their guest analysts.
“You have to buy this market!” cheered one gleeful matador.
So, after six months of vertical stock price action, after multiple sell signals from my favourite technical indicators, and after registering the most overbought conditions we’ve seen since early 2000, the analysts are stark raving bullish?
It would be nice to have a red cape and a sword.
Come to think of it, it would be nice to have some puts options. I’m gearing up for a short-selling festival in the weeks ahead.
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