From Jeff Clark in the S&A Short Report

Stocks are in dangerous territory. The rally over the past three months has done exactly what bear-market rallies are supposed to do - get everyone excited that a new bull market is underway.

This is not a new bull market. It's the biggest bull trap investors are likely to encounter this decade... And you need to avoid it.

Granted, I turned cautious a few weeks ago as my most reliable intermediate market-timing indicators were rolling over and about to flash sell signals. So we've missed the last 80 S&P points, and I spend a little time each morning wiping the egg off of my face. Remember though, in early March, I argued that short selling at that point was an act of stupidity... Despite the overwhelming number of talking heads on all the business shows arguing in favor of selling short, I argued against it. In fact, we were betting on a rally.

Now, the world has flopped 180 degrees.

The problem has been a persistent bid underneath the stock market and an absence of overwhelmingly bearish chart patterns. So far, avoiding the short side was a smart thing to do. Now, however, with the market rally extending into its third month and the investing public growing more and more excited about jumping back into the stock market, many charts are taking on bearish characteristics.

The one that looks most bearish to me is...

Crux note: Jeff Clark is the editor of the S&A Short Report. In his most recent issue, he recommends shorting the one Wall Street darling poised for a major breakdown. To play this breakdown, he's constructed a trade that could return 400% in just a few days. To access Jeff's research, click here.

More Jeff Clark:

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