JS: So, when is it a good time to short stocks? E.B.: I like to short stocks when the market is red hot. When stocks are up big, investors become less disciplined. They overlook problems that would normally scare them away. The higher stocks climb, the more investors throw caution to the wind. After all, it’s human nature to think the good times will never end. Eventually, companies can’t live up to the market’s unrealistic expectations. You see, the stock market “prices in” the future, meaning the price of a stock reflects how much money investors think a company will make tomorrow, next quarter, or next year. Sooner or later, some companies will disappoint investors. When that happens, look out below. JS: So you like to short expensive stocks? E.B.: It’s not that simple. You see, a lot of investors get carried away shorting. They’ll look for the next high-flyer and try to call its top. That can be dangerous. Shorting a stock because it’s “overvalued” is very difficult. Just look at Amazon (AMZN). It trades at more than 140 times future earnings. That’s off the charts. But the stock made a new high today. Amazon’s been expensive for years, and all it’s done is keep rising. That’s because it’s one of the most dominant companies on the planet. In other words, you shouldn’t short a stock just because it’s expensive. After nearly two decades of active investing, I’ve learned to avoid that strategy completely. I like to short companies that are dependent on a certain customer or economic situation that I expect to change. If my assumptions about changing economics are right, a company’s valuation today might be irrational and set to decline sharply. JS: The U.S. stock market looks very fragile right now. Is now a good time to short stocks? E.B.: Stocks have been rising for almost eight years. Corporate profits have been falling since 2014. And many key economic indicators, like the Purchasing Managers’ Index, are flashing warning signs. So, yes. It’s a good time to short. Surprisingly, most investors are still fully committed to stocks. They haven’t set aside enough cash. And they certainly aren’t shorting many stocks. If stocks start falling, these folks could take heavy losses. But since we have three open short positions, Casey Report readers should make money no matter what direction the market heads. JS: Can you tell us about a stock you’re shorting right now? E.B: One company we’re shorting is Signet Jewelers Ltd. (SIG). The stock hit a 52-week low yesterday. Signet is one of America’s biggest jewelry store chains. It owns jewelry brands you’ve seen at your local mall, like Zales, Jared, and Kay. These might be household names, but don’t confuse Signet with Tiffany & Co (TIF), which caters to a higher-end customer who often pays with cash. Signet serves the average American, and more than half of its customers buy on credit. That could turn into a big problem. Recommended Links A Decade in the Making: Hidden Profit Code Revealed In 2006, a prominent Wall Street financier handed me this 111-year-old document — a financial “timetable” that has predicted every major boom and bust of the last century with uncanny accuracy. I can’t thank him enough… because by using this powerful calendar, I had the opportunity to turn a small investment into over $1.2 million. The shocking details are right here.