Indicator Warns It May Be Time to Start Preparing for a Bear Market

3. Buy insurance against a market loss in the form of put options. Given the strength in large caps right now, they would be the best stocks to buy puts on. Puts on iShares S&P 100 Index (ETF) (NYSEARCA:OEF) with an exercise price of $76 expiring in March 2014 are trading at about $3.25. OEF is currently trading near $75.75. If it falls by 10% to $68.17, these puts would be worth at least $7.83, for a gain of more than 140%. That profit could help offset losses in other positions.

Breadth data could be wrong just like any other market indicator can be. However, breadth is now flashing a caution signal to investors, and taking steps to protect your wealth could be the best course of action.

This article was originally written by Michael J. Carr and Amber Hestla and posted on ProfitableTrading.

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