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How to Spot the Top


The short lists are growing...

A sign of a top is when your Short list is growing

One of the best ways to know if the market is topping and ready for a correction or a crash is when your list of stocks to short starts growing longer than your buy list. When your long list is getting longer and your short list is getting shorter, look out above.

However, our short list has been growing by the day this last week regardless of whether the market is up or down on any given day. This is a clear sign to me that the market is starting to top out.

There are still buy-low ideas on my long list, but they're getting shorter by the day. Since 11 of the last 12 autumns resulted in significant market declines and even several crashes, I guess none of us should be surprised if we soon have another big fall sometime this fall.

The "Upside of Down" in March was to buy low and the upside of the coming down will be to sell and short overvalued, overhyped, and overbought stocks high.

It's now time for you to build a short-side strategy so when the inevitable reversal happens you'll have a game plan in place to raise cash and to short stocks.

The Nasdaq market is the best place to look for high-flying stocks to short because the higher they rise the harder they'll fall.

Because the market is still in an uptrend, it's best to play both sides of the market -- long and short. Your short side strategy will start when we get a close below 1039 on the S&P 500. At that point you should only take on new positions that are shorts and place stops under key support on all longs.

A close below 1000 on the S&P 500, specifically below 992, means you should seriously consider abandoning all long positions and use all rallies in the market to raise cash or to get short. You can also look to buy inverse ETFs such as UltraShort QQQ ProShares (QID), Short S&P500 ProShares (SH), or Short Dow30 ProShares (DOG) to hedge your favorite long positions in your portfolio.

How to spot tops

Here are just a few simple and reliable signs of a top:

First, insiders are selling at a furious pace and insider-buying has abated. The insiders are the smart money so this is a sign that stocks are high and ready for a reversal.
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