My stop out point is the 876 level of the cash S&P and despite the bulls valiant effort to extend this multi-month rally, the index stayed below that level all day. The choppy eratic and fractured structure of the market today is the exact market action I expect to see at a top. The bulls knees become shakey and the bears gain confidence at these times. Then both are literally duking it out. As we can see from the last 30 minutes of trading today, the bears won. The bears should continue to gain the upper hand as the S&P should shoot sharply lower in a wave C toward the 761-780 area before I look for a bottom. The first test should be the bottom of the parallel trendchannel which hits the 812 area tomorrow. From there, round number support at 800, and then prior support at 780 should challenge the index's decline.
On the rally today, I closed more of my bullish option positions (options I sold as part of bear spreads) to where I have very little bullish hedging available. So I'm almost fully short the S&P, XLF, and various tech stocks using options.
STOP LOSS: with today's decline at the end of session being so strong, and all the stars lining up for a big decline right now, I think it's safe to move my stop loss area down to the 859 mini S&P futures level, which is just above today's high. After the weakness seen today, if the market shoots above that level in the coming days, it will most likely continue much higher and above 876. So I'm watching the 859 level and will most likely fully exit at the level, but will definitely be all out on a break above 876.
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