Yahoo Finance Inverse Stock ETFs to Hedge Further Pain
The equities markets have slipped below long-term trends and the widely observed Dow Theory, the oldest stock market signal, has signaled a “sell.” Nevertheless, investors can still hedge positions with inverse or short exchange traded fund strategies.
The SPDR S&P 500 ETF (SPY) is trading 2.8% below its 200-day simple moving average while the PowerShares QQQ (QQQ) was 1.8% below its 200-day and SPDR Dow Jones Industrial Average ETF (DIA) was 5.7% below its 200-day.
Looking at the Dow Theory, the equities markets could be in trouble ahead. Specifically, both the Dow Jones Industrial Average and Dow Jones Transportation Average have undergone a significant correction from their joint new highs; following the correction, one of the indices failed to rise above their pre-correction highs; and both averages dipped below their respective correction lows, with the Dow Transport broke under its previous low of 17,164.95, reports Mark Hulbert for MarketWatch.
Consequently, investors who are seeking a hedge against further weakness in the Dow Jones Industrial Average can utilize inverse ETFs to bolster their long equities positions. For instance, the ProShares Short Dow30 ETF (DOG) tries to reflect the -100% daily performance of the Dow Jones Industrial Average. For the more aggressive traders, the ProShares UltraShort Dow 30 ETF (DXD) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow30 (SDOW) reflects the -300% of the Dow. [Do You Know How Your Leveraged ETFs Work?]
Around 330 S&P 500 stocks are in correction mode or worse Friday, with energy, materials and industrials among the worst areas of the market, CNBC reports.
For those who are wary of a potential pullback in the S&P 500 index, there are a number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening S&P 500. The ProShares Short S&P500 (SH) takes a simple inverse or -100% daily performance of the S&P 500 index. Alternatively, for the more aggressive trader, leveraged options include the ProShares UltraShort S&P500 ETF (SDS) , which tries to reflect the -2x or -200% daily performance of the S&P 500, the Direxion Daily S&P 500 Bear 3x Shares (SPXS) , which takes the -3x or -300% daily performance of the S&P 500, and ProShares UltraPro Short S&P 500 ETF (SPXU) , which also takes the -300% daily performance of the S&P 500. [Inverse S&P 500 ETF Ideas to Hedge a Correction]
The S&P Tech Sector was the worst performing sector of the week, falling 3.3% week-to-date, according to CNBC.
Lastly, investors can also hedge against a dipping Nasdaq through bearish options as well. For instance, the ProShares Short QQQ ETF (PSQ) takes the inverse or -100% daily performance of the Nasdaq-100 Index. For the aggressive trader, the ProShares UltraShort QQQ ETF (QID) tracks the double inverse or -200% performance of the Nasdaq-100, and the ProShares UltraPro Short QQQ ETF (SQQQ) reflects the triple inverse or -300% of the Nasdaq-100.
For more information on the inverse products, visit our inverse ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
