The catalyst for this trade to unwind is simply the movement of funds away from the big-cap S&P500 stocks that have been lately making us all wonder how the market is staying up despite the big hits to technology and internet-related names. The generals are leading the army as the IWM Russell 2000 index is far from its highs. I think this is a time when it makes sense to be long the basic industries and short the overall index.
Keep in mind though, that I have a weekly buy signal on the SPY with a 184 stop. Pairs trading these positions in a portfolio would mean letting go of the SPY long position or cutting it down in size.
Risk tolerance - roughly 5% - potential return roughly 20% over 3-6 months.