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Grab Your Short Side Strategy as the Storm Picks Up


The extent of the oncoming damage is still unknown -- prepare for the worst.

Monday 's missive titled, Storm Clouds Forming Over 2010, was your warning to get prepared for coming bad weather in the stock market. And now those winds are kicking up.

Have you ever had the pleasure to experience firsthand a hurricane? If not, let me tell you that when the winds start bending the trees back like they were made of rubber, you know you're in for it. It's a process that builds and as time goes by, the winds get stronger and blow much harder.

Folks, the winds are starting to pick up, so expect the market to begin to sway. It's time to start putting safeguards in place by preparing a Short Side Strategy as this topping process unfolds.

What are the powerful market forces building for the coming hurricane?

First, the market is extremely overbought. Last week relative strength indexes from Yahoo crossed 80 on the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite. Simply put, stocks are perched up very high right now and they'll get knocked down if the winds start to pick up some more. Market acrophobia, or the fear of dizzying heights, is starting to grip smart money traders and soon small investors will experience vertigo from buying stocks so far above the lows.

Next, sentiment is a major concern as bears are nearly an extinct breed. Last week , Investors Intelligence Survey showed a four-year low in bearish sentiment. The Federal Reserve has done everything in its power to kill off the market bears. Squeezing the very life out of the speculative shorts with zero percent rates and strategic open-market operations have contributed to this now-dying breed. Only a few market bears have been spotted but most are in hiding, licking their market wounds inflicted by the Fed.

The bulls , however, are in full force and charging strongly into stocks. Last week's reading of 66% bulls in the Consensus Inc survey showed how successful the Fed has been in getting everyone and their mother back into the stock market.

The market bulls appear powerful and their numbers seem to be growing by the day. With weekly injections of multiple deadly steroids, the bull market appears to be as strong as ever, thanks to the Fed.
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