Here’s a relatively simple sell rule you can apply to your investing: If, after a multi-week advance (preferably at least two or three months), your stock suffers a huge down day on the biggest volume of the entire advance, it’s usually best to sell.

The latest, greatest example of this came with commodity stocks back on July 2.  That’s right–we spotted the top in many of these stocks in early July, allowing us to avoid the 35% to 50% declines seen in many oil, gold, steel, coal and fertilizer stocks since then.

Let’s consult some charts.  First up is U.S. Steel (X), the leading steel stock in the market during the market’s April-June rally.  Note the relatively smooth uptrend, a successful test of its 50-day moving average (the smooth blue line) in June–and then the 12.5%, one-day plunge on July 2, which occurred on three times average volume.  To add insult to injury, the stock also pierced its 50-day line that day, adding validity to the sell signal.

You can see what has happened since below.  Note that the decline took place despite a big gap up on earnings at the end of July.

A similar example is seen in Arch Coal (ACI), one of the leaders in the formerly-strong coal group.  The advance in the spring months was strong, but the July 2 meltdown was all you needed to see in order to book your profits.  Again, we present a before-and-after view:

Using this sell signal, you literally would have gotten out one day after the top.  One day!  What other rule or system does that for you?  Very few!

Of course, not every big winner is going to flash this sell signal, but many of them do.  So add this one to your collection of rules and tools–it’s sure to identify great exit points in many stocks during the next market rally.