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These past few weeks, the Standard & Poor´s 500 ETF (SPY) has been moving up relentlessly, and has now reached a critical price juncture.

Some factors have been lining up for a big move. Let´s look at some recent and upcoming economic events that will move the markets for the next couple of weeks.

Many market participants expect QE3 in the U.S. and/or more easing by the ECB.

It looks like ECB will ease, but QE3 will not be announced in the next meeting at the Jackson Hole.

Here's why I think the ECB will ease:

Mario Draghi, the ECB chief, has been aggressively pushing for more monetary easing, as the Manufacturing PMIs for most European countries are well below 50, which indicates a contracting economy.

European GDP printed -0.2% today (in line with expectations) but worse than the 0.0% in its last report, putting additional pressure on the Central Banks to take action.

Mario Draghi´s money expansion plans are currently being wrecked by the most economically stable country in the eurozone -- Germany. Political pressure is lining up for Germany, and it will most probably end up allowing the ECB to continue its monetary expansion plans, as economic reports continue to come in with "worse than expected" results.

European markets have been rallying for the past few weeks, anticipating more stimuli soon.

Here's why I think the Fed will not be able to push QE3:

Meanwhile, in the U.S., retail sales have come at 0.8% vs. 0.4% expected, suggesting "stronger" economic conditions, although these figures had been revised down.

U.S. real GDP´s latest report came in at 2.0%, indicating a weak expansion.

Inflation is expected to come in at 1.6% tomorrow, so deflation is out of the picture for the short-term.

With the S&P 500 above 1400, the pressure for more Fed easing is waning.

Sufficiently strong U.S. economic results, combined with very weak European economic reports, lead me to think that the Fed will not announce QE3 anytime soon. However, the ECB may initiate a bond-purchasing program in the next couple of months.

U.S. markets have been rallying along with European markets for the past few weeks. With the exception of this recent uptick, however, European markets have been mostly jittery during the last year.

Let´s take a look at the technical pictures for SPY and EWP:

Technical Picture (courtesy of stockcharts.com):

(click images to enlarge)

As you can see from the graph, the top that the market put on March and again in May has been slightly broken to the upside. This is good for the bulls, but I would caution against a bull trap, where markets keep rising to the point where there are so many people with long positions and so few shorts that the reversal will have a higher chance of happening, and the drop could be fast and furious, although not necessarily bad for the overall market.

Additionally, the "Ulcer Index" has been a reliable indicator for marking almost exact tops, as you can see from the white lines. When there is no "ulcer-forming" price behavior in the SPY and the VIX is below 14, the market´s complacency is way too transparent, and a reversal is inevitable.

Now, let´s take a look at the Spanish market ETF (EWP):

As you can see from this ugly graph, the Ulcer Index indicates the complacency of EWP investors.

This has been a pretty good timing indicator too, signaling when to buy and when to short. Right now, after a 23.5% rally, it seems most of the possible action by the ECB is baked in, and a correction is almost in order.

How to position yourself amid the uncertainty:

While it may be unpopular in a rising market, a bearish trade for SPY is in order, and considering how cheap the long puts are, the risk/reward favors trading the SPY short.

Here´s how a bearish put spread should look on expiration day for September for the 145/140 put spread:

This is a September put spread on SPY, which involves buying one 145 put and selling a 140 put, costing around $2.97 each, with a maximum payoff of $2.03 if SPY ends at or below $140 by the third Friday of September. The beauty of this trade is that you lose no money -- even if SPY closes at 142.03 -- so it seems pretty conservative to me. This trade could also benefit from an increase in the volatility, with the puts getting more expensive, leaving you the option to sell the put spread for a profit before expiration.

You can also play around with the strikes if you are more aggressive, as a way to invest less and possibly garner bigger returns, but that would require a further drop in SPY, and it is more speculative.

Final words: Be careful, as the bulls may still get the upper hand somehow. So if you place this trade, set your stops beforehand. I would place my stops at around 142 to 142.50, depending on your risk tolerance.

Source: Do Or Die Time For SPY: Big Move Coming