Why It Could Be A Good Time To Short Stocks Now (SDD, SPY)

This is the best spot to put on a short sale I've seen in a long time.

When the S&P 500 broke the rising-wedge chart pattern to the downside back in mid-January (something we warned about here and here), the intermediate-term trend for stocks changed. The trend transitioned from what looked like a straight shot higher into a period of correction.

And during corrections, traders profit by shorting stocks.

But the decline from the rising wedge was so violent and so fast, there simply wasn't a good, low-risk entry point for a short trade – unless you anticipated the decline and went short ahead of time. Stocks quickly went from overbought to oversold. And anyone shorting into an oversold market runs the risk of getting caught in a violent bounce. Which is exactly what we've seen over the past few days.

Take a look...

The red lines on the chart indicate various support levels for the S&P 500. As each support level is violated, it becomes resistance for any bounce attempt. You can see how the market held support on the daily chart near 1,050 and has now bumped back into resistance around 1,100.

Here's how it looks on a shorter-term, 60-minute chart...

If the current correction has farther to go, which I think it does, then the S&P 500 should fall to one of the lower support lines – either around 1,020 or 1,000. The index is currently bumping up against resistance at 1,100. The resistance should be strong enough to hold back any further rally attempt.

--> Continue reading at StockHouse.com.

Benzinga thinks the best ETF's for this trade would be a short on Standard & Poor's Depositary Receipts (NYSE: SPY) which tracks the S&P 500. Also another ETF to mention would be ProShares UltraShort SmallCap (NYSE: SDD) on the long side as SmallCap shares have been big out-performers and may have more downside.