While I remain net short there are two factors that are stopping me from getting aggressive. The first is that seasonality is still positive, although not to the extent that it has been. The second and more important factor is that the supply calendar is very light right now.
I don't believe it is a coincidence that the S&P 500 pulled back 50 points right around the time that GM had its $20 billion IPO and Bank of America sold its $8 billion stake in Blackrock. That was a lot of supply to digest and I believe it helped cause the only hiccup in the market in over 4 months.
Currently, the supply calendar is empty as is typical around this time of year. If we reached a time where the supply calendar starts to fill up and sentiment is still this extreme I would likely get more aggressive. The ideal situation would be if the government came to market with its stake in AIG, but that is not rumored to happen until March.
The market cannot continue this ascent forever and eventually the market will fall on its own weight even if we don't see heavy supply. But, I would feel a lot more comfortable on the short side if I knew that I was getting some help.