For those of you who are mandated to be in the market at all times, pair trades are a good way to go, provided you are able to put on short, or inverse positions.   One we will look at here is long small caps and short the S&P 500.  So far this year, the S&P is down 12.68% while the Russell 2000 is down only 6.11%.  Of course a good portion of that is due to the S&P 500's weighting in financials, but even with the monster bounce in financials of late, the Russell is still in much better shape.   Since the March 10 low in the small caps, the Russell is up 11.68% while the S&P 500 is up only .69%.  Below is a weekly spread chart that shows the relationship between the Russell and S&P 500 since 2004.  Notice how that spread bottomed in January of this year and has moved steadily higher even as overall market performance has been weak.  When the line is moving higher, the Russell is outperforming the S&P, and when it is moving lower, the S&P is outperforming the Russell.   The lower window is the 14 period RSI on the spread.  Notice how it is holding its highest levels since 2006.  Again, I apologize for the poor appearance of the chart. 



A great way to play this would be to go long SH (the inverse S&P 500 ETF) and long IWM (the long Russell 2000 ETF) in equal parts.  A good thing about a defensive play like this is that you don't have to blow out the short side if you want to take more risk but are unsure of the market.  All one would have to do is adjust the mix to a 60/40 weighting favoring IWM, or even a 70/30.  That gives long side exposure without 'naked long' market risk.   This is how hedge funds do it, now the average money manager or investor has access to investment vehicles to employ the same strategies.