Inverse Stock ETF Ideas to Hedge Short-Term Weakness
Corporate insiders are dumping positions at near-record levels, potentially hinting at troubles ahead. Exchange traded fund inverse can also hedge against potential risks in the market with small positions in inverse strategies.
According to investment research firm TrimTabs, insider selling hit $7.6 billion for the month of November, the fourth highest monthly level on record, reports Stephanie Yang for CNBC.
The selling may be foreshadowing problems to come as corporate insiders usually have more knowledge about the companies than public shareholders and what may drive the company stock movements.
“Historically when insiders are selling heavily it’s not the greatest sign,” TrimTabs chief executive David Santschi told CNBC. “I’m surprised given the valuations in the market that they’re not selling more than they are.”
Moreover, the disparity between stock leaders and laggards is growing, hinting at potential short-term trouble in the equities market.
“A widening of the spread between the market’s best performers and the rest of the market should be viewed as a cautionary sign,” Jason Trennert of Strategas Research Partners said in a recent note.
The 10 most valuable companies in the market are up 21.4% as a group this year, whereas the rest of the market shows a 2.6% loss – the 24 percentage-point spread is the widest since 1999, reports Tim Mullaney for CNBC.
“All these different underlying sentiment indicators are saying we could have a little bit of pullback here,” Tim Gordon of TradingAnalysis.com told CNBC. “Eventually I think the market stabilizes and we rally into 2016, but a pullback looks imminent.”
Consequently, ETF traders who are concerned about the prospects of a market pullback may include inverse strategies to help hedge their long equities exposure.
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. [Do You Know How Your Leveraged ETFs Work?]
As the SPDR S&P 500 ETF (SPY) dipped 1.3% over the past month, SH returned 1.1%, SDS rose 2.1%, SPXS increased 2.8% and SPXU advanced 2.9%.
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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.
