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Selecting Short Positions as Markets Begin to Turn Down

Article Quant Q&A · Author: cephalopod
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Summary

The document asks how to choose individual stocks to short when the broad market appears to be topping. The author describes using relative strength versus an index, following Stan Weinstein’s approach, and says this method has been profitable but may miss better opportunities.

The sole response recommends shorting the index itself, on the view that broad selling may make the index the strongest short as the market turns. It cautions that historical statistical beta estimates may not be reliable during a regime shift. The exchange provides no data, comparative tests, or detailed selection rules, so the recommendation is an opinion rather than an established result.

Key ideas

  • The question is how to rank individual stocks for shorting as the market rolls over.
  • The author uses relative strength against the underlying index as a selection method.
  • A respondent suggests shorting the index instead of choosing individual stocks.
  • Historical beta estimates may be unreliable when market conditions undergo a regime shift.

Tags

EquitiesTechnical indicatorsRisk management
Full text
# Quantatively identifying stocks to short when overall market starts to roll-over


# Quantatively identifying stocks to short when overall market starts to roll-over












Lets say we are seeing the market starting to top right now. Obviously, this leads to positioning on the short side. My issue is that I have a wide choice of stocks to short (overwhelmed by choice). The question then is which ones do I short that would maximise my return.

I currently use a crude method of Relative Strength to the underlying index (Stan Weinstein's method). This has been a profitable method for me but always felt I missed out!

Would appreciate very much if you could share your methodology of stock selection for shorting.

Thanks in advance.

## Answer by TickaJules (score 2)

https://quant.stackexchange.com/a/68439

my take would be -- short the index. I think when markets turn most people will sell the index and that will have been the best trade to be in. Not sure you can rely on historical/statistical beta calculations when you hit a regime shift.

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