Shorting the market, is it wise?

[aquaswim47]

Self Assessment: I'm looking for opinions on whether this is/may be a good strategy.

I was thinking of two options: Invest in the Pacific Region via a mutual fund or shorting the S&P 500 or Dow Jones Industrial Average. I also was considering a consumer staples or defense stock (such as UTX, JNJ, GSK, or PG).

I was thinking of using DOG (short the DJIA), SH (short the S&P 500 index), SDS (short 2x the index), SRS (short the real estate market bubble), or SFS (short the financial services companies) as potential considerations to short the market. I am wondering if the risks are unlimited with these index funds or if they operate differently than shorting individual stocks (beyond diversification). What happens if the index doubles? Does it wipe out your investment or cut it in half? In other words, is owning DOG the exact same as shorting DIA or different. If you short DIA and the Dow Jones Average triples, you owe the broker money beyond your initial investment. That's why I was thinking of buying DOG instead of shorting DIA since I consider shorting DIA too risky; in other words, I would rather buy DOG from my broker than to have the proceeds from shorting DIA and then buying additional stocks due to the unlimited risk associated with such a manuever.

Are people willing to join me along for the ride? Too risky? Not the right time? I'm interested to see if people believe the US market will fall for the next 8 months or whether people disaffirm that opinion. I've got $1K to invest and I was thinking of using Scottrade for the transactions. I would like to make money, in what I believe, will be a down market from March to May and December will equal May (with a lot of flucutation in between). I think I will become incredibly bullish if my predictions are true in December 2007 whereby I expect the DJIA to be down 10% from its peak point. In other words, I expect the DJIA to fall to between 11,500 and 11,750, since it is at such a high point right now.

Take care.

[investoid]

I'm currently long the S&P in my retirement accounts, but that's a long term view. Short term earnings may take a hit, but currently the US economy is still rolling along pretty well.

I could see there being value in coming up with a short term strategy that uses SDS and whatever its 2X long cousin is. You'd need to do some analysis looking at daily returns given the previous trading session(s) to basically anticipate when people will take profit or buy on value. I'm no day trader, so I know little about this area (I tried creating a Markov model to look for intraday swings but didn't have fine enough data). Just my two cents.

[WallStGolfer31]

Aquaswin47,

On what basis do you feel he DJIA will fall 10% ten months from now?

What kind of data can you extrapolate 10 months with accuracy good enough to base an investment decision on?

Also, why go long on Asia when the majority of their exports go to the US? If we take an economic hit, they take one as well, and possibly to a greater magnitude due to some countries heavy dependence on exports to the US.

Why consider shorting real estate when it has already declined heavily with economists predicting a bottoming out as soon as July 2007?



Note: With a $1,000 account you don't have the option to short sell, you must have at least $2,000 to be granted a margin account (which is needed to short sell)

Originally Posted by aquaswim47

Self Assessment: I'm looking for opinions on whether this is/may be a good strategy.

No.

[aquaswim47]

I think it will be interesting if the 10% decline comes solely from the sell-off and the Iranian oil crises.