Why am I unconvinced market will move down

I have covered my position in S&P 500 for a paltry gain of $200. Why am I so scared, covering way before I should.

Possible explanations:
1. Current market is already at very low valuations
2. My position sizing may be too large for comfort, especially considering the potential limited downside gain but unlimited potential upside loss (anything could cause a big upsurge in stock prices.)

However, market is still heading lower at this juncture. Do I really have to sit out? Tobin's explanation why market still has 25% more downside:

1.We've now realized our biggest nightmare -- the forced selling of assets into a locked-up market that triggers fire-sale prices and, in turn, creates additional forced asset selling.

2.The next wave of equity selling is starting with the Q1 hedge fund redemptions. I estimate $400 billion to $500 billion in withdrawals will need to be paid by April 1. Most hedge funds only allow redemptions on the quarter -- and you have to give a 60-day notice.

3. The next destructive economic wave is the collapse of consumer credit with the surge of new defaults on prime mortgages held at par value, along with credit cards and home equity lines.

4.Then the collapse of state/local income and sales taxes will rear its ugly head. We already saw a 10% decrease in sales tax collections for December 2008 and January 2009.

5.Next up, non-withheld income taxes will fall off a cliff, as fewer investors have capital gains and small business people have less taxable income.

6.And finally, there are corporate dividend cuts like the 65% cut General Electric (GE) announced last week. These will start adding up and will further contribute to the decline in the market, and the increase in tax shortfalls for the federal and state governments.

So, why am I still running scared?

Possible solutions to my dilemma:
1. Refrain from trading till clarity emerges. This means I will have to sit out the rest of the action on the downside.

2. Reduce position size when trading. Although I won't make much, but at least, I still get to participate, and profit from it.

After thorough deliberation, I will settle for shorting the market, on reduced position size, 4 lots of S&P.