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It's Time for Traders to Sell

By Jeff Clark
Thursday, June 21, 2012

Three weeks ago, I pointed to a chart of the McClellan Oscillator and told you it was time to buy.  
 
We weren't looking for a major rally, just an oversold, early-summertime bounce that would take the S&P 500 up to about 1,375 or so.
 
We got as high as 1,363 on Tuesday. Now, that same indicator says it's time to sell. Take a look...
 
 
 
The McClellan Oscillator is a momentum indicator that illustrates overbought and oversold conditions. At 80, the blue line on the chart above shows when the stock market has reached "extreme" overbought levels. The red circles signal each of the four times stocks have hit this level over the past year.
 
Here's how the S&P 500 performed after each signal...
 
 
 
Stocks fell immediately following each McClellan Oscillator sell signal. Then they bounced hard and formed a lower high before dropping to a significantly lower level. The S&P 500 lost between 10% and 17% within just a few weeks following each of the three previous sell signals. A similar decline this time around would put a bottom on the S&P 500 somewhere between 1,225 and 1,130.
 
Ouch. That's low.
 
The S&P 500 is up 100 points over the past two weeks. It's up 5% from when the McClellan Oscillator flashed a buy signal. That's a terrific return in a short period of time. And now, it's time to lock in those gains and sell.
 
In fact, aggressive traders should be looking to sell short into any further strength.
 
Best regards and good trading, 
 
Jeff Clark




Further Reading:

"Long-term investors may want to stay on the sidelines a while longer," Jeff wrote in May. But "traders should be buying stocks right now... with the idea of selling into any rally that develops over the next several weeks." That was less than a month ago. Today, stocks are near-exactly where he predicted they would be. Get the full story here: If History Repeats, Stocks Should Quickly Bounce.

In The Daily Crux
Market Notes
Energy commodities are in a downtrend... crude oil and natural gas are both down 15%-plus so far in 2012.
 
The fear index "VIX" sits at its lowest level since early May… despite worries over Europe's debt.
 
Spain and Italy funds plunge 20%-plus in three months.
 
FedEx surges to its highest level since April… despite a weak outlook in recent quarterly results.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1355.69 -0.2% +6.1%
Oil (USO) 30.49 -3.8% -17.0%
Gold (GLD) 155.97 -0.8% +4.0%
Silver (SLV) 27.26 -1.4% -22.3%
U.S. Dollar 81.42 +0.1% +8.6%
Euro 1.27 +0.1% -11.2%
Volatility (^VIX) 17.24 -6.2% -13.8%
Gold Stocks (^HUI) 452.19 -0.8% -9.4%
10-Year Yield 1.64 +1.2% -44.6%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 135.48 -0.2% +8.4%
S. Africa (EZA) 67.17 +0.4% +0.1%
Singapore (EWS) 12.28 +0.1% -4.4%
Japan (EWJ) 9.22 +0.9% -6.0%
S. Korea (EWY) 55.74 -0.4% -8.3%
Canada (EWC) 26.34 -0.3% -11.3%
Lat.America (ILF) 41.75 -0.1% -12.2%
Taiwan (EWT) 12.23 +0.3% -13.9%
China (FXI) 33.94 -0.3% -15.5%
Israel (ISL) 12.45 +0.7% -19.2%
India (IFN) 19.45 -0.2% -28.6%
Russia (TRF) 13.75 -0.2% -34.6%

Sector ETFs
Symbol Price
Change
52-Wk
Retail (PMR) 24.92 -0.4% +22.9%
Big Tech (QQQQ) 64.29 +0.1% +20.1%
Consumer Svcs (IYC) 80.99 -0.1% +16.8%
Utilities (XLU) 36.63 -1.0% +13.8%
Health Care (IYH) 78.21 -0.2% +9.5%
Real Estate (IYR) 62.61 -0.1% +9.3%
Software (PSJ) 26.25 -0.3% +6.0%
Construction (PKB) 13.24 -0.6% +5.0%
Biotech (PBE) 22.54 +0.5% +4.0%
Financials (IYF) 54.74 +0.2% +2.1%
Industrials (IYJ) 67.41 -0.5% +1.8%
Media (PBS) 14.40 -0.1% +1.4%
Insurance (PIC) 15.81 +1.9% +1.1%
Transportation (IYT) 93.70 -0.3% +1.0%
Oil Service (OIH) 36.02 -0.6% +0.0%
Big Pharma (PPH) 38.21 +0.0% +0.0%
Water (PHO) 17.91 -0.2% -2.1%
Defense (PPA) 18.90 -0.4% -2.9%
Semis (PSI) 14.78 -0.2% -5.6%
Telecom (IYZ) 22.06 -0.6% -5.8%
Basic Mat (IYM) 65.25 -0.3% -9.9%
Nanotech (PXN) 6.36 +0.2% -23.9%
Alt. Energy (PBW) 4.44 +1.1% -45.2%

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