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Must-See Charts: Be Ready to Sell S&P 500

NEW YORK ( TheStreet) -- The March S&P 500 futures have continued to grind higher, with investors pushing the index up to 1,471.50 last week. The market, however, has not been able to break away from this area of multi-year highs -- at least not yet.

It appears to me that the recent swing high was simply a stop-running expedition. Unless the market can break out in strong fashion with a close above 1,480, I remain skeptical that we'll see another leg higher.

After all, many of the indicators I use are now in neutral territory and are flirting with becoming overbought. Money has been pouring into mutual funds again, and we all know the market's tendency to reverse once everyone starts getting long. Earnings season is upon us, and any major disappointment could be the market's undoing.

Let me be clear: I do not expect a major sell-off. (However, this will be dependent on lawmakers getting a debt ceiling agreement done.) I do feel that the market is getting overdue for a pullback, and the fact that there is a large gap still open underneath the S&P 500 only reinforces this belief.

Gaps tend to get filled at some point in time, and often sooner rather than later. If the market runs out of gas here, I think the gap fill in the coming weeks will become likely and could help set up a decent short position. It is important, however, to be patient and not jump the gun.

I would recommend looking for either a retest and failure of the recent highs, or confirmation of weakness before getting short. Should one of these events occur, one may get short futures or sell calls.

Once a short futures position is in place, target the gap fill around the 1,425 area. How one goes about getting short is a matter of personal preference, risk tolerance and trading style. Please feel free to email me to discuss any questions you may have or how to structure a trade based on your market views. Please note today is Jan. 15, and all trade data is based on the most recent information.

Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Option writing has unlimited risk and an investor may lose more than their original investment.

Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.
Matt Zeman is a trader at Kingsview Financial. He began his trading career as a runner in the grain pits at the Chicago Board of Trade before becoming an arbitrage clerk. Eventually he started trading equity options and stocks. Matt now is a full-time futures broker. He has been a frequent guest on CNBC, Fox and Bloomberg, and provides his views on the stock, bond and futures markets for financial media including Dow Jones, the L.A. Times and The Associated Press. Matt is a member of the Chicago Board of Trade, and carries series 3, 7 and 66 licenses.

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Chart of I:DJI
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