Friday brought an upbeat February jobs report, but confirming that market participants are locked into the coronavirus, stocks continued swooning as the number of confirmed cases of the respiratory illness in the U.S. ballooned past 230.
With major equity benchmarks such as the S&P 500 and the Dow Jones Industrial Average residing below key trendlines, including the 200-day moving average, conditions are ideal for active traders to consider inverse and leveraged bearish exchange traded funds.
Here are a few names traders can consider if market conditions continue deteriorating over the near-term.
The ProShares Short QQQ (NYSE: PSQ) is an ideal way for even conservative traders to participate in downside for technology and communication services stocks: this fund is inverse, though not leveraged.
What that means is that PSQ is designed to deliver the daily inverse performance of the popular Nasdaq-100 Index. So if that benchmark declines by 1% on a given day, PSQ should rise by 1%.
PSQ is also a good short-term hedge for investors holding the Invesco QQQ (NASDAQ: QQQ), the Nasdaq-100 tracking ETF. Although PSQ isn't leveraged, those using it should still treat as a short-term instrument.
“Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return and ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period,” according to ProShares.
Friday's more than 15% jump, one built on heavy volume, by the Direxion Daily Energy Bear 3X Shares (NYSE: ERY) notwithstanding, it's easy to see why ERY is an alluring short-term play in the current environment.
The Organization of Petroleum Exporting Countries said earlier this week it's cutting output, and Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) laid out budgets that indicate a large amount of prudence. Yet energy stocks are trading as if oil is at $20 per barrel, not the $43 area where it actually resides.
ERY aims to deliver triple the daily inverse returns of the Energy Select Sector Index, and the risk with this fund is clear: ERY has already more than doubled this year, and with the energy sector so battered, it may not take much after the coronavirus situation ebbs to ignite a rally here, punishing ERY in the process.
Although the February jobs report would appear to indicate the U.S. economy remains on solid footing, it encompasses a period in which the coronavirus only started becoming a concern in the U.S. Now, it's a breakout — and one that could easily derail consumer confidence.
Look at Amazon.com, Inc. (NASDAQ: AMZN), which is lower by more than 8% this month.
Amazon is relevant to the Direxion Daily Consumer Discretionary Bear 3X Shares (NYSE: PASS) because PASS's underlying index devotes over 23% of its weight to the e-commerce giant.
Enter the ProShares Ultra Short Industrials (NYSE: SIJ), which tries to deliver double the daily inverse returns of the Dow Jones U.S. Industrials Index.
Looking at the Industrial Select Sector SPDR (NYSE: XLI), a near-term case grows for SIJ. XLI is sporting a March loss approaching 14% and closed Friday about 11% below its 200-day line.
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