The longer I trade, the less I'm willing to take longer-term views on the overall market (different concept from having the guts to go for big gains on individual trades), but aside from the economic data that's never been hot, which is all based off a downtrending housing market with plenty of inventory overhang still out there, there are a number of factors which indicate that we may have another pretty good equity downswing soon.
1) The yen, a borrowed currency in the carry trade, is pushing highs. It would be nice to see confirmation with the USD, the other major low-interest-rate currency higher, as well, but what can you do.
2) Some technician has come up with this thing called the "Hindenburg Omen," which we've realized lately. Look it up. I'm not attaching a whole lot of weight to it, but it's another factor. I believe that some technical indicators withstand the test of time.
3) T-bonds are mad strong. Coupled with strong gold, the market is confirming a deflationary theme, caused by an increased money supply overwhelmed with even more greatly diminished money velocity, bringing about decreasing prices, as in the US's first great depression.
4) The absurd contango in VIX futures.
5) Imminent bankruptcy by many governmental agencies and public pension funds.
The riskier bonds, for which I use LQD and HYG as proxies, aren't weak, which means they are not pointing to a collapse. It would be nice to see the corporate bond spread widen a bit more as another sign of risk aversion, but you'll rarely have every factor lined up in advance of a major market move.
So how does this knowledge inform my trading? I believe market crashes are things a trader can profit from best by waiting for the panic to start rolling first. I'm not anticipating panic before it occurs, but I'm ready to jump aboard at the first signs of it.
After taking a bit of heat on the long Aug VIX, short Sept VIX trade, I substituted market puts once the Aug VIX expired and I've been making money virtually every day for the last week on my market neutral paired trade. The VXX ETN's beginning to sell Sept VIX futures every day after Aug expiration day has probably helped.
