The stock market is rising for a long time. As sentiment becomes unanimously bullish, smart investors realize that is the most reliable sign that the end of the long term bull market is nearing. We are not bearish yet, but we realize that this long term bull market will turn into a stock bear market at a certain point.
Last week, InvestingHaven’s research team explained which 3 leading indicators to watch for a trend reversal, which, again, could take several months before it unfolds. Timing a trend reversal is impossible to predict. That’s why InvestingHaven recommends to look at leading indicators, primarily the transportation index as well as 10-year Yields.
Smart investors get in early once a new trend starts. As stock market bulls are enjoying their party, smart investors are compiling their shortlist of stocks to short once the trend reverses. It can take many weeks and months before they open a position which is why a lot of patience is required in order to be a profitable investor.
Just to be clear, we do not expect a stock market crash in 2017. However, at a certain point stocks will become weaker as capital starts flowing to undervalued segments. That’s how it always goes, and this time will not be different.
The least constructive segment at this point in time is the retail stock market sector. So that is the top candidate for a short position once stock market conditions become bad.
The weekly chart of the retail sector shows how it is not able to go higher in the last 3 years. Right now, major support is being tested. There is a breakdown possibility if the stock market becomes bearish.
However, when looking at the stock market from a relative strength perspective, the retail sector has already entered a bear market. The sector relative to the S&P500 is already heading lower. This is very bearish, and will become much worse once turmoil will enter the stock market. That is why the retail stock market or select retail stocks are candidates for juicy short positions.