After a long flight delay I am finally back home, feeling well rested after a nice vacation. On the plane ride home I had the opportunity to think about the market. The conclusion that I have come to is that sentiment is in place for a top of consequence. I can recall a handful of occasions when the bulls were so fearless and they did not end well for the bulls.
While I am confident that sentiment is in place for a major top, the timing is a little trickier. Sentiment is stretched enough that it could happen at any time but the week before options expiration does not usually see major reversals of strong trends. Another positive for the bulls is that we are in the quiet period before earnings so there is likely to be little supply of stock in the form of secondary offerings or insider selling. While seasonality will not be a factor next week it will be a positive thereafter until the beginning of May.
However, after options expiration the picture will change drastically. Many major reversals have been seen right after expiration. The government will start selling their shares of Citigroup a little bit after expiration, Bank of Ireland will likely sell shares of M&T Bank and we should see other supply as well. In addition, once the turn of the month passes seasonality will turn negative.
In summary, I still hold a small net short position and am planning to make the position very large after expiration. I am tempted to increase my position now as I am confident that sales at these levels will eventually be rewarded.