In nature, there are no extra points for beating the biggest and the baddest. A lioness out on a hunt has no issue taking down an older injured wildebeest. A cheetah doesn't hang its head in shame because it chased down the slowest gazelle and ate it for dinner. So why do traders do it? Why do traders fight the biggest and baddest? Pride? Frustration? Stubbornness? It's tough to say.
I know many folks who day after day having been shorting the S&P 500 or the Russell 2000. "It's due for a pullback." "This move doesn't make any sense." "These equities are being propped up by quantitative easing." And so on and so forth. But so what?
There is no rule saying that you only have to focus upon an index or two. And maybe that is your trading vehicle of choice, but if you've put yourself in that corner, then you have to adjust to the market we have.
Why not look for a slower gazelle or an injured wildebeest? There are opportunities out there.
"But I don't want to miss the market drop by trading something else!" Who really thinks the injured wildebeest or slower gazelle is going to suddenly start becoming faster or stronger if the weather changes? The same can be said of the markets. I doubt weaker stocks will suddenly become strong if the market starts to fade. A recent earnings disappointment, sales disappointment or technical breakdown will not simply be cast aside because the S&P 500 heads lower.
I've not advocating buying the S&P 500 or saying don't short. It's not the only game in town, however, and when I'm looking at the short side of the equation or looking at short exposure to benefit from a market pullback, I think there are many better places to look than the SPDR S&P 500 ETF Trust (SPY).
I went through some charts this weekend and found at least 15 names I'd prefer to play short or play some type of straddle/strangle options play on over SPY or the iShares Russell 2000 Index Fund (IWM). I plan on covering some of these names this week, but not wanting to leave this dangling out there, some of the possible short setups include Six Flags (SIX), Air Methods (AIRM), Rovi (ROVI), KB Home (KBH), Ingredion (INGR), LPL Financial (LPLA), Tenet Healthcare (THC), TripAdvisor (TRIP) and Sociedad Química y Minera de Chile (Chemical & Mining Company of Chile, SQM).
Now is a good time to take a short pause and review your hunting strategy. Try and keep yourself out of a fight with something bigger and stronger than you or you are bound to get hurt.
At the time of publication, Tim Collins had no positions in the stocks mentioned.