Profit taking finally hitting the market, after a huge run-up. 

The last two days have been brutal for the bulls, with the Volatility Index (VIX) hitting its highest level since August 17th. That’s five months to be exact. 

SPX has pealed off of its highs in a big way, having dropped 50 points off of its all-time highs.

Does that mean you should get short here? 

You could, and it might just work well for you, but the risk/reward is not in your favor. You still have to consider the tendency of this market over the last 9 years, of constantly seeing the dip being bought. It is unlikely for the market to head straight down from here, and the more likely scenario is for there to be a bounce and perhaps nullify today’s move with a move back to the all-time highs again, in the days ahead. . 

A lot of people will look at the current sell-off and see it as another, and rare, opportunity to buy the dip. They won’t stop buying the dip until the dip buying doesn’t work any more – in the mean time, there will be multiple attempts to keep the market pushing higher. Whether it succeeds or not, remains to be seen, but when it does fail to push higher, that is when you want to be short. 

In essence you are looking for the failed bounce attempt for your clue. 

Here’s the bearish list of trade setups: