We characterize the electrical properties of a biocompatible nanocomposite which will be used as a stress sensing material in an instrumented knee implant. The composite is fabricated from multi-walled carbon nanotubes and ultra high molecular weight polyethylene. Experimental cyclic compression loading shows that the composite's resistance exponentially decreases with increasing compression stress, proving its potential for application as a piezoresistive stress sensing material. An analytical model is built to estimate the optimal depth from the tibio-femoral contact surface at which an embedded stress sensor could achieve the highest stress resolution and lowest distortion energy inside the tibial insert.