9. Sell the S&P 500 and Buy the Nasdaq Composite
The graph below shows that the
Nasdaq has consistently outperformed the
S&P 500 over the past six months.
So why would it be a contrarian move the short the S&P 500 and buy the Nasdaq? Isn't that just following the trend? The chart below shows why it could be considered contrarian. For the past month, the S&P 500 has outperformed the Nasdaq. Unless you think that will continue, you could bet on a reversal to the form of the last six months. This is contrarian with respect to the 30-day record but trend-following for the past six months.
Why would one put on such a trade? If you have high uncertainty about how the market will move but expect that one index is likely to outperform the other, you can try to profit from that difference while otherwise staying market-neutral.You can use the following ETFs to short the S&P 500: the Short S&P 500 ProShares (SH) and the UltraShort S&P 500 ProShares (SDS). The PowerShares QQQ (QQQQ) ETF is long the Nasdaq, and the Ultra QQQ ProShares (QLD) is ultra long (2X). The companion ETFs are S&P Depositary Receipts (SPY) (long the S&P 500) and Ultra S&P 500 ProShares (SSO) (ultra long), and for shorting the Nasdaq, you can use Short QQQ ProShares (PSQ) and UltraShort QQQ ProShares (QID) (ultra short).