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When Does a Shorting Opportunity Come?

Many investors are chomping at the the bit for shorting the stock market. If you think about it, it reflects a personal belief of what they expect will happen.

The big question is "How can we know there will be a severe drop, and how early can we know?"

In order to answer this question, we went back on the Super Accelerator Model and looked for the indicator events that gave us an early warning in 2008. Here is the chart and what we found ...

Note that the really big down moves only happen when the Super Accelerator moves into Contraction Territory along with the S.T. Accelerator and C-RSI being negative as well. But if we ignore the Super Accelerator and if we look for the S.T. Accelerator being at an extreme low along with the C-RSI going negative at the same time, then we can get an early warning 1 week before the down event. (A deviation from that was when the Super Accelerator was still in Quadrant 2 (a lower positive level). In that case, waiting 2 days and watching the S.T. Accelerator showed an upside turnaround like what happened in August 15 of 2007. Below is the 2007 chart that show's the timing.

Contrast this with where we are now. The Super Accelerator is in Quadrant 1, the S.T. Accelerator is dropping, but it is still in Mid-Quadrant 2 (a lower positive), and the C-RSI is still positive. The S.T. Accelerator and the C-RSI are both dropping, but they have not gone negative yet for an early warning shorting condition. So, while conditions are concerning, they haven't deteriorated to a Super Accelerator Danger level yet.

The S.T. Accelerator and the C-RSI are both dropping

 

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