With bonds up and oil down, Wall Street breathed a small sigh of relief yesterday, sending the Dow Industrials moderately higher in an otherwise eventless session. Despite the rally, we still feel pretty good about our short in the S&P. There are two good reasons for this: first, we initiated the position at an unbeatable price, 1229.50; and second, Monday’s price peak in the Dow at 10984 generated some of  the ugliest stochastic readings since December’s top. Check out the chart. Each series of price tops since late 2004 has generated correspondingly lower stochastic peaks on the daily chart. This suggests that, as the Dow was making higher highs, sellers were becoming more aggressive, buyers more timid.

(Click on chart to enlarge)

Sometimes it is quiet distribution that puts a top on a rally, but the distribution evident in the chart is of a less subtle variety, more closely akin to an anaconda making its way across 42nd Street.  A serendipitous pullback in oil over the next few days could make it easier for the smart money to slither a little closer to the exits, but they shouldn’t count on this factor to endure for long. As you may be aware, we’ve already projected a rally in crude to at least 59.72, basis April. But oil quotes would only have to firm slightly to touch off a new wave of fear on the Street. Anyone who loads up on stocks at these levels is probably laundering money. We’ll relax and enjoy the spectacle for a day or two, keeping an eye on our short-S&P position in case folly should erupt into hysteria.