Double Top in S&P; Dec. 19, 2008

Very tough tough couple weeks analyzing this market. With failures to push higher to my 950 target in the S&P in a timely manner and the momentum indicators trying to turn down, the VIX falling on complacency, and now the above double top formation in the S&P, it starts to beg the question if the market is getting ready to roll over very soon.

Breadth is strong and the Nasdaqs are still outperforming the blue chip indices so I'm not diving in fully short yet. But I'm not sure being long now is a good idea. It's options expiration day today and that brings about large volatility at the open and close of the markets. With the VIX in complacent mode, breadth strong, and the Nasdaqs very strong, I'm going to make an educated guess that the volatility later today at the close will be to the upside. I will exit half my long position on an S&P break of 877 and exit fully on a break of 850, but probably sooner.

With that said, if we get a huge rally today, I will use that as an opportunity to close most or all of my long positions and to start establishing short positions. Keep in mind it's possible we could see the market float higher during the holdays towards 1000, so I will apply position sizes accordingly. But the way I see the market now, a big rally today is an opportunity to take profits on long positions and start getting short.