In March of last year, I forecast that we could expect a major rally,  which I labeled as Primary Wave 2. It was expected to correct the entire decline from October 2007 to March, 2009 and reach as high as 1,228.73 on the S&P 500 within the time frame of February 2010, to May 2010.

We are not quite there yet, and the question is, "Will we make it?"

It is still entirely possible that my projected high of 1,228.73 will be reached sometime in the next 3 or 4 months, as expected. But if we do reach that target, and I still think it likely, it will be after a near-term decline.

With the market on a seeming endless quest higher, what makes me so near-term cautious?

The appearance today of a very rare, very reliable technical sell signal based upon the VIX.

The last 3 instances of this signal were triggered in September 2007, February 2008 and May 2008, and each one led to a big selloff.

I'm confident that this one will lead to a selloff as well.

What is the signal? It's a a technical pattern called a VIX reversal signal. The signal is based upon 3 things happening: 1. A daily close of the VIX below the standard 2.0 Bollinger Band,  2. A daily close of the VIX back inside the 2.0 BB – this issues the signal, and 3. A higher close than the close of the day back inside the 2.0 BB – this confirms the signal.

That has just happened and it is now likely that we will see the overall market pullback in the next few weeks.

It should be noted that the VIX sell signal does not directly correlate with a market selloff immediately. It can take up to a couple of weeks for the market to fall based upon this signal.

So if the VIX sell signal appears today (it did), that does not mean that the market will immediately begin a decline tomorrow.

But sometime in the next two weeks I am looking for a decent pullback in the stock market.

Bears will get excited that a new decline has begun, but that excitement might be premature. We still have that ultimate target of 1,228.73 to attain.