How to identify a short opportunity:
Price Pattern: Looking at the past 3 tops that led to declines over 5%, including the big one in 2011, we had 3 tops before the decline. It can take months, like in 2011, or over a couple weeks like in april and sept 2012.
What would set up a perfect short this time, is a big up day monday, followed by a couple days down, then another leap to new highs, another small correction, and one last rally. Sell the farm and short the last rally.
Sentiment: Watching for a high put call number on ISEE also, has worked well when is over 200 for the past couple years as a short term sell signal. Also a put call under .5 for equity options on cboe is a great signal. Weekly numbers are on a sell already.
Bottom line: Shorting a rapidly rising trend is not the best way to make money, but imagining that when momentum actually ends that it will start up again is as good a way to lose money as any other. We are close to a top, short and intermediate and long term, but not quite there yet.
For the record, if we do go up big on monday, i will short in afterhours if price goes up a bit more. If we get high tick readings at the close, will short for sure in afterhours, as that was the signal last time for a 3% drop in the next couple days.
