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10 ETF Strategies to Stay Ahead of the Bearish Turn

This article was originally published on ETFTrends.com.

As the equity market continues to pullback and more or less erase gains for the year, concerned investors can take on some exposure to bearish or inverse ETFs to hedge against further falls.

For example, 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.

Those who want to hedge against risk in the Dow Jones Industrial Average utilized inverse ETFs to bolster their long equities positions. The ProShares Short Dow 30 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 Dow 30 (SDOW) reflects the -300% of the Dow.

Lastly, investors also hedged 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.

"Ongoing risks keep us cautious and we continue to recommend that investors pare back risk if their equity holdings are above longer-term strategic allocations," senior strategists at Charles Schwab warned clients, according to CNBC. "Economic and earnings growth rates may be peaking, while the labor market continues to tighten. This mix contributes to higher wage growth, possibly higher inflation and related uncertainty with regard to Fed policy."

Despite the strengthening economy and steady corporate fundamentals, the growing concerns over economic growth, political headwinds and rising interest rates have all contributed to uncertainty ahead, with the sharp pullback this week revealing the potential volatility investors will have to face.

"Unlike 2016, there are no more tax cuts to salivate over and the deregulation momentum is going to now slow, or maybe stall, in the House," David Rosenberg, chief economist and strategist at Gluskin Sheff, said in a note. "Rare is the day when the stock market goes down in the lead-up to Thanksgiving – and if it does, that indeed will be a very bearish signal."

Nevertheless, there are some that remain hopeful of a turnaround. GDP continues to strengthen and the fourth quarter is likely to produce U.S. economic growth of around 3%, which is consistent with the full year. The employment numbers remain robust with wage growth on the rise. Many still trust the Federal Reserve will step in if things get too bad. Investors would then have to monitor short-term volatility that could trump the long-term growth trends.

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