The put/call ratio is finally starting to reflect the rally in the market:
The ratio has done a good job keeping me from shorting last week. Yesterday's spike suggests the market is finally ready to top. Additionally, since after the huge rally only 88 % of the volume was on the upside, yesterday qualifies as a capitulation day.
I think the next few days will be choppy with an upside bias leading to the employment report on Friday. The highest the market can go is 1320 SPX, obtained using the Fibonacci levels applied to the rally from September 2010:
Notice how the market tends to pause around the levels. Only the 61.8 level (the lowest yellow one) is matched by me at the highs of the first significant correction (around 1150).
My plan is to take an opportunity to go short for an IT correction after the employment report. Shorting before is risky since expectations are high. Being patient and selective is the best way I know to make money on the short side in a bull market.
For the ST Trading, my bias was long this week but there was no larger pull back to fade so I decided to stay on the sidelines.
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