To hedge myself, I could have simply gone long SPY or DIA, but I did not. Instead, I tried to find which world market was performing the strongest, and I went long that market.
I noticed that Taiwanese stocks were doing relatively well (EWT), also Chinese stocks (FXI), and finally Israeli stocks (EIS) showed strong relative strength. But the market that seemed to be outpacing everything else were Malaysian stocks (EWM):
As you can observe in the above chart, Malaysian stocks are not close to making new lows, while the DJIA and SPX are. I believe that going long the strongest market in the world, while short selling some of the weakest stocks I can identify, gives me an edge.
The next chart shows EWM divided by SPY:
As the above chart rises, it shows that EWM is rising faster, or falling less slowly than SPY. Of course, should this ETF lose its strength, I have a stop loss point to take care of it.
