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Option Skew Points to More Downside Potential in the Nasdaq

NEW YORK (TheGoldAndOilGuy.com) -- By now it is no secret that equity markets continue to deliver solid gains for 2014. In fact, all of the major U.S. domestic stock market indexes are higher for the year. U.S. equities have benefited from an accommodating Federal Reserve, massive corporate stock buy-back plans and solid earnings growth. The bullish trend which began in early 2009 has pushed equity indexes to several all-time highs.

However, when we focus our attention on 2014 one index is showing major relative out performance. The Nasdaq and the Nasdaq 100 indexes have blown away every other major index in terms of overall returns in 2014. The chart shown below illustrates the returns of each major U.S. equity index year-to-date.

Read More: Warren Buffett's Top 10 Dividend Stocks


As can be seen above, when looking at the corresponding exchange-traded fund for each major index, the Nasdaq 100 Power Shares (QQQ) is running away from every other major index in terms of performance. As a contrarian trader, I am of the opinion that now may be an excellent time to consider looking for a possible short position to hedge against the bullish trend.

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