Nasdaq Composite Prints Last Engulfing Pattern

I'm watching the canaries -- the NAZ and the RUSS -- at this point for clues on the near term direction. The NAZ may have just dropped a feather: it made a Last Engulfing pattern today. From Matheny Enterprises, note that the Last Engulfing pattern "is found after an extended bullish trend [and] represents the bulls final attempt to drive the market higher. If one is long and a Last Engulfing Bullish pattern forms, one should identify a protective stop level near the lows of the Last Engulfing Bullish pattern to protect any profit in the trade." A nice pop in the S&P tomorrow above the highs of the 17th with divergence would suit me just fine. I would then be looking for a Turn Around Tuesday.

Though it appears that the markets may well move higher longer term, I feel risk is high, and at the very least, we could correct. Therefore I am looking for opportunities to establish smaller short positions, buy volatility, and trade against these with calls on dips, knowing there may be an End Of Quarter markup to contend with as well. Lest anyone think I'm some sort of perma bear, I do still have 33% of my long position from the March '09 lows. I merely prefer to establish positions and take profits at sentiment extremes.