Montreal, Canada

As world markets enter the den of another sell-off since hitting a low more than 14 months ago, it’s time to start placing some bets against some sectors that might decline sharply this summer and fall.

Capacity has drowned some areas of the global economy heading into this summer, namely tied to the commodities cycle. These include renewable energy, oil stocks, shipping companies and the base metals.

The easiest way to speculate against a stock or a sector is to purchase options or LEAPs (Long-Term Equity Anticipation Securities).

Options are not for everyone; if you get the timing wrong then the odds are pretty good you’ll get wiped-out on a trade. But if you get the timing right, an investor can log huge gains in a short period of time.

The shipping sector is probably home to the best short this summer because capacity continues to drown the bulk cargo space where a blizzard of dry-ship vessels is coming online over the next 12-18 months – orders booked ahead of the 2008 credit crisis. Some shipping companies have gone bust or have been rescued by their respective governments (Germany’s Hapag-Lloyd).

Container ship owners have been especially badly hit by the global slump in the sector, which has seen volumes drop sharply and rates per container shipped fall by as much as 50% compared with highs established in the summer of 2008.

The Baltic Dry Index, which tracks freight rates for dry bulk shipping, tanked more than 90% in 2008 and has since partially recovered; but shipping rates remain depressed and more capacity is coming online this year and in 2011.

Shipping is therefore facing a glut on top of a supply avalanche already evident in 2010. Many stocks in this sector have indeed peaked but remain well above their 52-week lows and are poised for another leg down.

Solar companies represent another sphere that’s highly vulnerable to a major decline. Solar stocks have already declined sharply since last fall and largely failed to participate in the post-March 2009 global rally. Fundamentals continue to deteriorate for this sector, including cuts in subsidies and trouble securing financing.

Solar stocks in Europe are especially vulnerable as austerity measures in Spain – a leader in solar government subsidies – faces growing pressure to make cuts. The Germans, also sponsors of renewable energy subsidies, have already started to cut state incentives since 2009.

The Chinese and Americans are also making big inroads in the solar sphere, cutting Spanish and German renewable companies’ market share. If there was ever a great speculation against solar, the Spanish represent an easy target because unlike the Germans, they’re forced to make budget cuts amid a crisis in the euro-zone’s most heavily indebted countries.

Speculating in options is a gamble. If you go this route be sure to use money that you can afford to lose and use a pre-set stop-loss on your entry price.