At the end of May, I wrote an article titled, 5 Reasons the Stock Market is Going to Crash in June. In that article, I said, “There are so many things pointing to a sharp sell-off in the very near-term future, it’s amazing. The only thing — the very last signal I need to see before becoming an aggressive bear — is a weakening of the internal market.”
I said I would let you know when “final shoe drops,” and that time has com.
You MUST reduce your bullish exposure and consider taking bearish positions right now to profit from a bloody market.
You did not — I repeat — did NOT miss the boat.
This market is going to get smashed up for a little while. You are going to start to hear it in the financial media, because they will see the external market averages — S&P 500 (SPX), Dow (DJI) and Nasdaq (NASD) — continuing lower. We saw this early in the internal market last week.
What Should You Do Next?
If you have bullish positions on the table right now, you have some choices to make. Exit them, hedge them well or, at the very least, reduce the exposure by selling half and sitting in cash.
Personally, I’m a big fan of just making serious profits on the downside move by taking bearish positions.
You might think the market has already sold off, and you’ve missed the chance.
WRONG! There is more downside to go.
First, you need to get out of the way — the bears are stampeding (yes, on Wall Street, bears can stampede), and if you’re a bull right now, you’re gonna get torn to bits.
But don’t just run away from it. Get bearish and profit from the decline.
Look Out Below
The internal markets are clearly showing that supply is in control. The trend is showing that more and more stocks are breaking support levels, and more and more stocks are moving lower.
The popular market averages have already “confirmed” what I’m telling you.
First, we all knew there was resistance right at about 950 on the S&P 500. It has had problems breaking through the January top for a couple of weeks now (see the red horizontal line and gold arrows on the chart below).
Then we saw the third fan line violated in mid-May. The fan lines are the three blue trendlines you see below. Notice that after each trendline is violated, that trendline becomes the new resistance level (red arrows).
Each time a trendline is violated, we draw a new one. When the third one is violated, it’s considered an official reversal of the uptrend. Notice, that after finding resistance after violating the third trendline, the external market (S&P 500) traded sideways. (To learn more about identifying trends, see Chart Your Way to a Lifetime of Profits.)
We can also see, in the momentum indicators, a negative divergence.
You can see that the higher highs in the market occurred where we also saw lower highs in the Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD) (see the purple dots and diagonal red lines).
This is a precursor to a reversal of the uptrend.
Position Yourself to Profit From a Plummet
The external market and the internal market agree. Anyone who tells you, now, that the market has more upside should not be in the market.
Of course, anything can happen, but the odds enormously favor more downside during the coming weeks to months. Based on what I’m seeing, there is about an 85%-90% chance the market moves lower.
It’s time to significantly reduce your bullish exposure and get positioned to profit from stocks moving lower. (Learn How to Pick the Right Put Option.)
Remember, you have not missed out on all the market’s downside. There is still money to be made, and there is no time like the present to benefit from the market’s next move. Play it and get paid this time instead of watching your recent gains disappear. Don’t wait another minute.
Many of you will consider what I’m saying, and sit and think about what to do, or you’ll wait for the market to move up again first. The rest of you will make money — as long as you take action. Execute!
Chris Rowe is the Chief Investment Officer for Tycoon Publishing’s The Trend Rider. To learn more about him, read his bio.
