When Leaders Lose Support

So why is this happening now, at such a bullish time of year, when all we hear is how the big money doesn't want these stocks to fall because of bonuses and tax-selling purposes? After all, the higher their gains, the higher their bonuses. Plus, why would anyone want to sell these stocks and have to claim the taxes involved after such huge gains?

The answer is in the sentiment readings and in seeing what the commercials -- or smart money -- think is ahead of us. The commercials are the second-most short they've been in two years, which means they see some selling in the near future. Last time they were this short was in December 2004, and the market took a strong hit lower in January.

In addition, the sentiment at Investors Intelligence is at a very complacent 38.2% more bulls than bears. This is a fairly lethal short-term combination. The commercials always take precedence, but when you add complacency to the picture, you have a short-term sell signal.

None of this signals a long-term crash, but it surely is a red flag for the near term. Avoid chasing breakdowns just because the stocks are as loved as FedEx and Apple surely are. There are times to stay clear, and for now, this is one of those times. Obey the message while it's in play.

Often, when stocks break down, they will retest those breakdowns from underneath, so be prepared for that in the days ahead, especially since they are getting oversold.

Finally, the Nasdaq is at the bottom of its current triangle, and thus a bounce here can't be ruled out. Play it cautiously, please.

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