From Jeff Clark's Direct Line:

One of the charting tools I use to help time my trades is a slow stochastic measurement on the daily S&P 500 chart.

You don't really need to know anything about it except that its oversold below 20 and overbought above 80.

Last week, as the S&P threatened to break the neckline of the H&S pattern, and EVERYBODY seemed willing to bet on that break, the Slow stochastics were down around 10. They were oversold.

That's one reason why I doubted the break would occur.

Stochastics now are at about 50 - which is neutral. They don't have to get overbought before turning lower. But, that would be the ideal setup.

Holding today's gains and then rallying tomorrow would probably give us that ideal situation.

Frankly, I'm tempted to go short here with the S&P at 897 - especially since so much of today's momentum is due to Ms. Whitney's favorable comments on GS, and with GS' earnings due out before the opening tomorrow it would be a perfect "head fake" for the market.

But I'm waiting.

The high for Goldman Sachs this year is 151.17. If it makes it above that level it will do so with massive negative divergence on the MACD indicator. GS would be a great short sale at that level.

If GS tops out in conjunction with overbought stochastic readings on the S&P then I'll be willing to bet heavily on a big market decline over the next week.

That's a lot of "ifs" but they seem to be setting up.

So, here's what I'm planning on doing...

Crux note: Learn exactly how Jeff is playing this short by subscribing to his advisory service, Short Report. Click here to learn more about Short Report.

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