Betting on any sort of downside in this market since mid February has been a losing proposition (see my post about "Endangered Species"). But technicals don't lie and if history is any guarantee, this is what I am looking at:
There have been two instances since 2006 when the ratio of S&P 500 to Russell 2000 fell below 1.70. First time it happened in spring 2006 and subsequently IWM dropped 15% in coming months. Second time it happened in Sept 2008 and no one needs to be reminded of what happened next. As of this morning, it is happening the third time. See the chart on the right.
I am buying IWM following put spread:- Buy to open May $68 puts
- Sell to open May $63 puts
Small cap stocks are the first to lose ground on any sort of pullback. I just filled the order for $1.40 debit.
Good luck!
