By Jeff Clark in the S&A Short Report:

Today, we're going to use a bounce in the broad market to add another short position to our portfolio.

Here's why…



A head-and-shoulders pattern is developing in the chart of the S&P 500. This is a bearish pattern and indicates the reversal from a bull trend to a bear trend. You can calculate the projected move by taking the difference between the top of the head (950) and the neckline (880) and subtracting it from the neckline. (Here's how the math works: 950 minus 880 equals 70. Then 880 minus 70 equals 810.)

So if the index drops below the neckline, the intermediate bear trend is in force, and the pattern projects a move all the way down to 810.

The S&P came close to breaking the neckline yesterday. But as I wrote in the Direct Line, the bulls were ready to defend that level vigorously. And we were unlikely to see the chart break down on the first attempt.

Instead, the S&P will probably bounce and form a lower high before it finally rolls over and completes the pattern. So we need to use any strength today and/or Wednesday to add to our short positions.

My upside target for a bounce is 910 to 915. At that level, we'll have a good risk/reward setup to bet on the downside.

The sector that looks most vulnerable is the financials…

Crux note: Learn exactly how Jeff is playing the break down in financials. Click here to learn more about Short Report.

More from Jeff Clark:

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A hugely profitable oil trade is setting up

Jeff Clark predicts double-digit market decline