Many market observers follow the old adage “sell in May and go away,” but traders who are sticking around can hedge against the summer doldrums with leveraged and inverse exchange traded funds (ETFs).
“Depending on which side of the fence you’re on, if you’re a trader you have choices,” according to Direxion Investments. “Sell in May or don’t go away. And if you’re more cautious than optimistic, there’s another option – hedge away.”
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Technical traders are also growing more cautious after the S&P 500 recently formed a triple top – a bearish pattern that identifies three peaks at nearly the same level and may predict a reversal in a prolonged uptrend. Currently, the S&P 500 only formed the three peaks but has yet to break below the support level across the recent troughs.
“Most anyone you talk to thinks the odds favor some kind of pullback to come in the U.S. given their latest run,” Direxion said. “But as with any uncertainty, for traders there’s opportunity.”
For instance, Europe is a major area of concern next month as the United Kingdom votes on a June 23 referendum on whether or not Britain stays in the Eurozone or makes a break in a so-called Brexit. Consequently, post-May trading may be more active this year, with some analysts anticipating European stocks could experience significant volatility, depending on the Brexit outcome. As history has shown, large political events have negatively impacted markets, but they have also created buying opportunities.
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Moreover, lingering questions over the health of the Chinese economy and the Organization of Petroleum Exporting Countries’ next move are also still on the table.
Consequently, investors who were wary of a potential pullback in the S&P 500 index can look to a number of number of bearish or inverse ETF options with varying levels of leveraged exposure to capitalize off a weakening equities market.
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.
The heightened volatility may also help support gold prices and further bolster the mining sector.
For more aggressive long gold exposure, traders can look to leveraged ProShares Ultra Gold ETF (UGL) and ProShares UltraShort Gold ETF (GLL) . The Direxion Daily Gold Miners Bull 2x Shares ETF (NUGT) and Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) have been popular long bets on the gold mining sector.
Additionally, investors may seek refuge in safe-haven Treasuries. More aggressive traders can consider leveraged options to play a bounce in Treasuries, such as the ProShares Ultra 20+ Year Treasury (UBT) and Direxion Daily 20+ Year Treasury Bull 3x Shares ETF (TMF) .
For more news and strategy on the Gold market, visit our Gold category .