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Where I'll next try to get short...

I just looked at every major market top (defined as the S&P 500's intra-day high preceding at least a 20% subsequent correction) since 1968, in order to see how extended (percentage-wise) the market got at that intra-day high vs. its 50-day EMA. Here's the data:

12/2/68: 109.37 vs. 103.99 = 5.2%
1/11/73: 121.74 vs. 116.42 = 4.6%
9/22/76: 108.72 vs. 104.88 = 3.7%
2/13/80: 120.22 vs. 111.55 = 7.8%
11/26/80: 141.96 vs. 131.83 = 7.7%
8/25/87: 337.89 vs. 317.34 = 6.5%
7/16/90: 369.78 vs. 356.35 = 3.8%
7/20/98: 1190.58 vs. 1130.93 = 5.3%
3/24/00: 1552.87 vs. 1416.23 = 9.6%
10/11/07: 1576.09 vs. 1509.05 = 4.4%

What's interesting is that in only very few of these situations had the market gotten more overextended (vs. its 50-day EMA) at any point earlier in the rally than it was on its final day. Most frequently, the ultimate peak was also the most overextended day of the rally vs. the 50-day EMA, or at least the peak-day overextension approximately matched the most overextended days earlier in the rally).

By way of comparison, in the current rally, we've had several days of "major overextension" vs. the 50-day EMA:

5/7/09: 929.58 vs. 841.55 = 10.5%
8/7/09: 1018 vs. 940.49 = 8.2%
9/23/09: 1080.15 vs. 1008.39 = 7.1%

Meanwhile, last week's high was 1181.43 vs. 1135.36, which was only 4.1% over the 50-day EMA.

Interestingly, I didn't notice ANY days since 1968 other than 5/7/09 in which the market had gotten as much as 10% over its 50-day, but this was primarily a function of how much BELOW the 50-day the market had gotten in March of '09, thus sinking the average very steeply.

Conclusion: I would tend to throw out the "10.5% day" as a fluke, and guess that this rally ends on a day that the market gets somewhere between 7% and 9% over its 50-day EMA. So, seeing as Monday the 50-day should be around 1137, I'll probably look to get short at 7% over that (1216), and raise that point in lockstep with the 50-day EMA, which is going up around 1.5 points per day.

The only issue is that although the market will inevitably correct back to the 50-day the next time it gets from 7% to 10% over it, that peak may not be the ultimate peak, and it could rally again from there. I'll cross that bridge (in accordance with the data) when I come to it.

Fundamentally, I believe that the recently impressive economic stats have been due to the filling of pent-up demand from the 85% or so of folks who aren't unemployed/underemployed, but that demand won't be enough to sustain this economy, especially in light of rising interest rates and the still-flatlined housing market.