Timing My Short Sale

Options expiration has tended to delay corrections. Most recently, the 9% January correction started right after option expiration and we had a 2% correction right after February expiration.  If somehow the market continues to plod higher through expiration it would be a no brainer to get short at that point.

Unfortunately, I don't believe the market will make it that easy and I expect some sort of whack between now and expiration. Here are the potential catalysts I see that could lead to a correction:

• The regional banks flood the market early next week with stock offerings in order to repay TARP. At a minimum, that should put a lid on the market and make it safe to short.
• The Big Kahuna. This coming Tuesday, March 16, is the date that the government is allowed to sell its Citigroup stake. At current prices an offering would be over $30 billion. In some cases option expiration could exacerbate a move. It could get really ugly if the government comes to market next week. I wouldn't count on this one happening next week as the government moves mind numbingly slow. It should happen at some point if Citigroup's stock price stays at current levels.
• The 10 day moving averages of the put/call ratios should be at extreme levels early next week.
• The final option is plain exhaustion or a blow off. These are tricky and require a bit of intuition. In a blowoff I look for panicky buying as opposed to a steady advance. This should be accompanied by heavy call buying. We have not seen a blow off top in a long time. More often we have seen exhaustion where heavy call buying fails to lead to much upside.

Most likely I will start slowly scaling into a short position this morning. If I see one of the above catalysts I will pick up the pace of sales.