The back story: When something goes up in a straight line, I am usually chomping at the bit to get short, so a lot of people have been asking me this week why I’m not yet short the market on the current rally. While I want to be short the market, this latest market move needs to exhaust itself first.

Monday’s spike up – the biggest one-day move in months – had shorts excited, but it was followed by Tuesday’s close with the Dow Jones Industrial Average, the Standard & Poor’s 500 and the Nasdaq Composite all finishing at record highs at the same time for the first time since July 26. Simply jumping onto the short side because you saw things spike up was dumb.

I didn’t want to short anything ahead of Apple’s Tuesday announcement; Apple (AAPL) single-handedly has been carrying the market, which made conditions that much more tenuous for a short on Tuesday. You don’t want to short the market on a strong day, particularly one with a wildcard like Apple news.

Don’t fall for the fake-out: From here, with futures on all three indexes likely to be down pre-market this morning, and I expect a 50- to 80-cent decline in the S&P that will get all of the traders excited. But when something makes this strong of a move, it doesn’t just reverse overnight, so don’t go for the first drop.

What I’m looking for: I can’t pick the level where something will be a perfect short, but I want to see something start hitting resistance. I want to see the rally look like a tired fighter in the late rounds of a boxing match, hitting the wall and running out of gas.

I’m looking for the market to re-test the same highs more than once, and specifically the Nasdaq Composite, as I think the QQQs are most vulnerable right now.

How I’ll play it: I bought 200 Sept. 22 $146 QQQ puts on Tuesday and plan to double the position if the QQQ doesn’t break out of $146.50. If that happens, I also will go long the ProShares Ultra VIX Short Term Futures (UVXY).

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   Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs.  At the time this was published on RagingBull.com, he held  200 Sept. 22 $14 puts on QQQ, and was planning to trade more as described here.  He had no shares, options or open orders in UVXY, but was planning to trade the ETF as he explained in this article. He has traded both ETFs regularly throughout 2017.

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