As much as you may think I have just gone MAD, I believe it is time to start dipping your toe in on the short side in the stock market.

I don't want to boast, take credit, or run a victory lap about the Trade Alert I sent out yesterday.

After all, two hours after I sent out the Trade Alert to sell short the Russell 2000, the small cap index has plunged $2, or 1.36%, creating an instant $1,480 profit for my nimbler followers.

No, I won't go there.

Instead, I want to continue on with the finer points of the rationale for doing this trade.

I didn't have time earlier because I was in a rush to get the Trade Alert out while the (IWM) was still rallying to its high for the day.

The new Republican plan floated yesterday to delay corporate tax cuts to 2019 has certainly put the cat among the pigeons with equity investors.

It has reminded them how high stocks have run, and how much now withering unrealized profits are sitting on their books.

The Russell 2000 is actually misnamed, as it now has only 1,700 stocks.

The rest have disappeared over the years through mergers, privatizations, or bankruptcies, and have not been replaced, as happens quarterly with the S&P 500 (SPY).

For you and me this means that the (IWM) is more illiquid that the (SPY). When stock markets fall, the (IWM) falls about 1.5 times faster than the (SPY).

In other words, it's a great short to have in a falling market.

I think stocks markets may be starting to either top out, or roll over here, at least for the short term.

That is especially true of the Russell 2000, which has not participated in the rally for the past month.

An approaching yearend is a big risk for the markets, as are overstretched valuations and prices.

The warning signs of a selloff are absolutely everywhere, but until now, have been ignored.

My Mad Hedge Fund Trader Market Timing Index has been living in overbought territory for the past two months. The normal life of a medium-term top is, guess what? Two months.

To see how risky markets are right now, take a look at the three-year history of my market timing index.

It shows that the normal life of a medium-term topping process is two months.

When will that two months end?

About mid-December, two weeks before gigantic deferred tax selling hits the market in January.

Another way to play this is to buy the ProShares Short Russell 2000 ETF (RWM), a bet that small cap stocks will fall.

If you are looking for other ways to hedge your portfolios you might consider the Trade Alert I also sent yesterday to buy gold (GLD).

Look at the chart below for the barbarous relic and you see that we have a sideways triangle formation setting up over the past month that will be a nice springboard for a sudden move upward.

All we need is one more threat to the tax cuts, which these days, seem to be coming out of the woodwork.

Listening to subscribers in all 50 states, I don't know a single individual who is seeing the prospect of lower taxes as a result of the Republican plan.

It appears that those earning between $200,000 and $500,000 a year will bear the entire burden of the package, who make up the bulk of my readers.

The benefits gained through a doubling of the personal exemption don't even come close to offsetting losses from lost tax and mortgage interest deductions.

And where is the cut in capital gains taxes, long a Republican goal?

If you make anything over $500,000 a year, you're golden.

To prove that The Diary of a Mad Hedge Fund Trader only deals with the highest quality, top drawer clientele, I want to share the picture below sent in by a subscriber.

The recent 4 1/2 point jump in the US Treasury bond market has just given us another chance at the brass ring.

Except that this time, it's different.

Now we have a technical picture that is also setting up an almost perfect head and should top on the charts.

How would you like to get some free lottery tickets?

Except that these are better than lottery tickets.

Instead of a one in a million chance of winning some substantial dough, the odds of a big payoff are more like 90:10.

Have I piqued your interest? Are you ready to take a flier? Do you feel like rolling the dice?

And here's another come-on.

The last time I recommended this exact trade in August followers earned an eye-popping 50% return on capital in only four weeks!

It's really quite simple.

This morning, the yield on the ten-year Treasury bond briefly touched 2.29%, a new three month low.

Let's say that's the low for the year, and that yields rise from here for the next four months, pummeling the bond market.

This would be a fabulous time to buy a long dated (TLT) March 2018 $123-$125 out-of the-money vertical bear put spread at $1.00.

If bond yields back up to 2.45% where they were two weeks ago and shave five points off the (TLT) from today's levels, this spread would expire at its maximum theoretical value at $2.00 on March 16, 2018.

The profit on a $10,000 investment would amount to (100 contracts X 100 shares per option X $1.00), or $10,000, giving you a four-month gain of 100%.

Not bad in this yield deprived world.

Please see the screen shot from my Interactive Brokers platform to see how to set up this position.

Now let's say you have a prodigious appetite for risk and want to spend some of the massive profits you earned following the Diary of a Mad Hedge Fund Trader in recent months.

Let's say that you are willing to bet that bond yield are likely to back all the way up to the 2.62% where they traded in March.

In that case, you want to buy the (TLT) March 2018 $116-$118 deep out of-the-money vertical bear put spread at $0.28.

If you are correct, and bond yields back up to a lofty 2.62% and cut 11 points off the (TLT) from today's levels, this spread would expire at its maximum theoretical value of $2.00 on March 16, 2018.

The profit on a $10,000 investment would amount to (356 contracts X 100 shares per option X $1.72), or $61,232, giving you a four-month gain of 512.32%.

Please see the screen shot from my Interactive Brokers platform to see how to set up this much more aggressive high-risk position.

If you add either one of these super aggressive positions you are making a number of different bets.

1) The global synchronized economic recovery continues.

2) Jerome Powell, the next Fed governor, will continue with Janet Yellen's policy of raising interest rates 25 basis points per quarter.

3) Pernicious deflation moderates, thanks to the large scale recovery spending wrought by Hurricanes Harvey in Texas and Irma in Florida and the fires in Northern California.

4) Some kind of tax cut gets passed by congress within the next four months, no matter how modest.

These may not be bets that you are willing to make with your own hard earned cash.

But if they are, the potential payoff is enormous, a lot like winning the lottery.

I am not necessarily saying this is going to happen with any certainty.

Nevermind that every financial guru out there, including Warren Buffet, Ray Dalio, David Tepper, and George Soros agree with me and argue vociferously that bonds are wildly over priced, at a bubble top, and long overdue for a huge fall.

So far, they have all been wrong, including me.

I'm just sayin...

Here's the Brass Ring Trade for the Rest of 2017