I am currently holding a significant short position in retail stocks because I believe consumer spending is beginning to falter. The housing recession, which began with the collapse of homebuilding stocks, has started to spill over to rest of the economy as can be seen in the recent troubles of financial stocks. The next shoe to drop maybe the shares of retailers.

My favorite shorts are Black & Decker (NYSE:BDK) which depends on a strong housing market; Dick’s Sporting Goods (NYSE:DKS) which depends on healthy discretionary spending; and Target (NYSE:TGT) which has so many stores that they will not be able to grow profits in the face of a general slowdown in consumer spending.