Raising the short exposure

I am raising my short exposure in my portfolios. Although I continue to think that the S&P 500 is likely to retest a price level around 1,500, I also think the weakness in the periphery indexes and measures suggests an underlying weakness in equities. For instance, new highs minus new lows (5 day total) has fallen off in recent days.

Ditto for the relative price of the Morgan Stanley Cyclical Index vs. Dow Jones U.S. Consumer Goods Index.

Most importantly, the performance on the Russell 2000 index is validating, in my mind, the underlying weakness in the entire equity market. The Ishares Russell 2000 Trust (ticker IWM) is shown below

What is concerning, or presents an opportunity depending on your perspective, to me is the expansion of volume on the downside move. In yesterday's trading, the IWM traded more than 74 million shares, more than at any other point since the April 10 print of 101 million shares, where the IWM closed at $78.35. This volume acceleration comes of an overbought condition on the stochastics and a weakening MACD/RSI. Small caps tend to be more economically sensitive as compared to their large brethren and this weakness suggests to me that the broader market may crack.

To round back to my original statement, I still see no reason why the S&P 500 cannot get to about the 1,500 level. However, the underlying weakness that seem to be building leads me to conclude that putting some risk capital to work on the short side is prudent.