The current rally has taken the S&P 500 up over 70 points from the lows in a period of two weeks. That makes the market short term overbought. Seasonality is strong for the first couple of days of December month but turns negative later this week. I expect the market to make a short term high in the next few days. At a minimum the market should trade sideways if not lower.
While I am cautious about the very short term, the intermediate term picture is not as clear. Sentiment indicators show that investors remain on the bearish side despite the recent rally and intermediate term seasonality favors the bulls. Normally I would say that this combination is enough to make me very bullish in the intermediate term. But it is difficult to know what effect a change in capital gains rates will have in the last few weeks of the year. There is also the possibility that all the special dividends have a positive effect on the market.
My plan is to use strength early this week to put on some hedges but to remain net long. It takes extreme optimism for me to get neutral or bearish at this time of year and we certainly are not seeing that.