Bear With Them in January

Stocks will avoid suffering their worst December since the Great Depression as long as the S&P 500 closes above 2,594.56 on Monday. Regardless of whether they do or not, the problems that have affected the stock market in the final months of 2018, such as the handling of interest rates by the Federal Reserve, the nervousness around the slowdown in corporate profits , political divisions in Washington, and unresolved trade. The tensions between the United States and China are unlikely to be resolved in January.

Fireworks may continue to light up Wall Street in the first week of the new year, and Fed Chairman Jerome Powell is scheduled to speak at the American Economic Association (AEA) meeting in Atlanta on Friday after the report was released. December employment. Greater guidance on interest rate movements in 2019 or a sharp rise in wage growth that could further constrain company earnings have the potential to move markets.

Later in the month, investors will get a better read on the latter as companies progressively release fourth-quarter earnings. “Guidance will be crucial,” said Quincy Krosby, chief market strategist at Prudential Financial, Inc. (PRU), referring to the fourth-quarter earnings season. by MarketWatch.

Whatever happens, it looks like January will offer traders some attractive trading opportunities as the market tries to navigate through a myriad of unique challenges. As news emerges, traders can use these three leveraged exchange-traded funds (ETFs) to short the market should they encounter the key support levels listed below.

ProShares UltraPro Short S & P500 ETF (SPXU)

Launched in mid-2009, ProShares UltraPro Short S & P500 ETF (SPXU) aims to provide three times the inverse daily return of the S&P 500 index. The benchmark is a market capitalization-weighted index of the 500 largest US companies. They are publicly traded by market value. SPXU’s leverage combined with a very fine spread of 0.03% and an average daily trading volume (ADTV) of over $ 300 million make it an ideal instrument to place an aggressive bet against the S&P 500 index. The fund has $ 419.28 million in net assets, offers a return of 1.31% and has an expense ratio of 0.91%. It has had a return of 21.92% during the last month to December 31, 2018.

READ ALSO:  Definition of independent profit

SPXU price broke through a six-week consolidation period in mid-December, around the same time that the 50-day Simple Moving Average (SMA) crossed above the 200-day SMA to provide a “golden cross” signal that suggests further bullish momentum. . Traders should look to open a long position if the price falls back to the initial breakout level at $ 42 which is now acting as support. Consider using the December high as your profit target and setting a stop-loss order below the 50-day SMA.

Image by Sabrina Jiang © Investopedia 2021

ProShares UltraPro Short Dow30 ETF (SDOW)

The ProShares UltraPro Short Dow30 (SDOW) ETF, created in 2010, seeks to return three times the inverse daily performance of the Dow Jones Industrial Average (DJIA). The DJIA is made up of 30 leading US companies, primarily from the industrial and consumer goods sectors, listed on the New York Stock Exchange (NYSE) or Nasdaq. SDOW trades nearly 9 million shares per day, providing ample liquidity for short-term traders. As of December 31, 2018, SDOW, with assets under management (AUM) of $ 166.12 million and paying a 0.98% dividend yield, was up 19.53% over the last month. The fund charges a management fee of 0.95%.

The ETF chart shows two distinct swing highs in October and November that should provide an area of ​​life support at $ 18 if the price continues to pull back during the upcoming trading sessions. Traders may want to wait for a price reversal pattern to form, such as a bullish engulfing hammer or candle, before going long. Consider placing a stop below the recently formed “golden cross” pattern and booking profit on a run to the December 24 high of $ 23.90.

Image by Sabrina Jiang © Investopedia 2021

ProShares UltraPro Short QQQ ETF (SQQQ)

With AUM of $ 581.84 million, the ProShares UltraPro Short QQQ (SQQQ) ETF provides investment results that are three times the inverse daily return of the Nasdaq 100 index. The underlying index includes large actively traded companies that operate in non-sectors. financials such as technology, biotechnology and healthcare. SQQQ offers ample liquidity with more than 43 million shares that change hands daily and has an average margin of 0.07%. Trading at $ 17.13, with a 0.95% expense ratio and offering a 1.29% dividend yield, the fund has delivered a 13.93% year-to-date (YTD) yield at December 31, 2018.

SQQQ shares accelerated above the $ 16 resistance level in mid-December as the broader market fell sharply. The price has recently retraced to test the initial breakout area. A rotating candlestick pattern printed on Friday that shows indecision between buyers and sellers. Those who wish to trade this ETF should expect a pullback to the $ 15 level, where the price finds support from an uptrend line going back to early October and the 50-day SMA. Consider placing a stop slightly below the 200-day SMA and bank profits near $ 21, where the ETF may find resistance from the December high.

Image by Sabrina Jiang © Investopedia 2021

About the author

Mark Holland

Leave a comment: