Mad Money

The Surest Sign It's Time to Sell

There are plenty of indicators out there that mean you should sell a stock, but there are few that are as rock solid as this one: whenever you see a stock that’s being heavily shorted and also heavily hyped at the same time, you should be selling that thing nine ways from Sunday, Cramer says.

Shorts + Hype = Sell

Hype can mean many things, but in this case Cramer is talking about analyst recommendations, celebrity endorsements and much-touted facts in the media that don’t actually mean anything for a company’s bottom line.

Combine that with a big short interest and you have a dangerous mix. Remember, shorting is basically people buying a stock high and selling it low, instead of the other way around. Shorts are betting a stock is going to go down and they’re typically right about as often as they are wrong. However, when they are up against a group of hyped-up, entirely positive analysts, the shorts tend to be right a whole lot more.

Shorting a stock is risky, and usually the only people who do it are well-educated investors who have done their homework. So when you have all the analysts on one side having a love fest with a particular stock, and an army of shorts sitting on the sideline betting the stock goes down, you should see a red flag – it almost always means there’s something wrong that no one is talking about. It’s not inside information; it’s just information the bulls would be more comfortable ignoring. But if you ignore it, you could get crushed.

Bottom Line: Big hype plus massive short interest equals sell.

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