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Why it could be time to short the Nasdaq

The Nasdaq composite index closed at its highest level since April 2000 on Monday.

Since a 10 percent pullback in April, the index has gained nearly 6 percent. In the last 12 months, the tech-heavy Nasdaq is up 30 percent. Has the rally run its course?

"The Nasdaq is a story of two markets: the haves and the have-nots," said Gina Sanchez, founder of Chantico Global. "There are still very high-fliers in the Nasdaq, and there are some really under-appreciated stocks that have tremendous potential."

Sanchez said that while high-flying momentum stocks have been sold off, they may still be overvalued. "There are parts of the Nasdaq that could continue to trend lower," said Sanchez, a CNBC contributor. "We have priced in so much growth into this market and if we don't see it, we're going to have to correct."

Richard Ross, global technical strategist at Auerbach Grayson, is also negative on the Nasdaq.

In early March, it traded above 4,371 only to pull back 9.7 percent in a little over a month. "It just stops right there to a dime on [its] 200-day moving average," said Ross, a "Talking Numbers" contributor. Since then, the index has bounced back to around its February highs, closing Monday at 4,368.68.

That's closing in on where Ross sees resistance—at 4,440. He sees the Nasdaq beginning a reverse-head-and-shoulders bottom starting in 2007 and ending three years later. The neckline resistance of that pattern was at 2,800 while the bottom was in the 1,200 range.

"That provides us with a very nice upside measuring tool," Ross said. "The height of that pattern is 1,600 points."

Projecting above the neckline—1,600 points above 2,800—puts the target at 4,400.

"With our upside target almost realized," said Ross, "I don't need to be a buyer of the Nasdaq here at the tail end of a five-year virtually straight-line move, considering how far above trend we are. So, if this pattern is to work at all—which it has very well in the past—this is not where you want to be buying the Nasdaq. It's where you want to be taking profits and being a seller of the Nasdaq."

To see the full discussion on the Nasdaq composite index, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.

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