I think I'm going about my trade in the wrong way, and a lot of this has to do with the fact that my options have been limited as to what I can trade. But shorting indeces outright doesn't seem to be the best play at this time. Financials and consumers are tanking while energy and materials are ripping, so we're seeing some offsetting action here. And this is also why the current bear-market rally isn't all it's cracked up to be. We don't have broad rallying across all sectors, and for me to start changing my mind and thinking about putting on some sort of short-term long index trade I'd have to see broad based support on strong volume.
80% of S&P 500 profits still come from the domestic economy, but the DOW components take much less than that from the U.S. I'm looking for where I can find this data (I don't want to have to go through each individual component of the DOW), but it's safe to say that as far as being tied to the U.S., it would go Russell, S&P, and then DOW. And now is time to bring in a topical chart via MacroMan:
Quite a disparity between domestic and foreign YoY profit growth. Makes a very compelling case for my short Russell trade and less of a case for my short DOW trade. Macro Man recommends a large cap/small cap spread trade. Now that might work for me If I had a big capitalization but I have a pretty small account. I'm more likely to just cut my short DOW trade and keep my Russell 2,000 short on.
I'm feeling pretty comfortable right now with my short equities position. Falling domestic profits, elevated valuations, and what will likely be slower consumer spending all lend support to my trade.
