Dear Fellow Investor,
The latest pullback in the major indices isn’t a big surprise.
After an explosive election-fueled run, the Dow Jones, for example, became technically overbought on RSI, MACD and Williams’ %R. When these three get as overbought as they became, it’s only a matter of time before they pivot lower with the index.
In fact, if you pull up a three-year chart of the Dow, you can see that every time those indicators became severely overbought, the Dow pivoted lower.
One way to trade the current – and future pullbacks in indices is with inverse exchange-traded funds (ETFs), which will run higher as the underlying asset drops.
With the Dow, we can use the ProShares UltraPro Short Dow 30 ETF (SDOW).
We will typically use the SDOW ETF when we see the Dow Jones becoming overbought. Then, when the Dow does start to drop, the SDOW ETF will push higher. It’s not a long-term trade idea. It’s more of a “until the Dow bottoms out” trade. With an expense ratio of 0.95%, the ETF seeks daily investment results that correspond to -3x the daily performance of the Dow 30.
With the NASDAQ, we can use the ProShares UltraPro Short QQQ (SQQQ).
Much like the SDOW ETF, we’ll use this one when the NASDAQ gets overbought. With an expense ratio of 0.98%, the ETF seeks daily investment results that correspond to -3x the daily performance of the NASDAQ.
With the S&P 500, we can use the Direxion Daily SPX Bear 1x Shares ETF (SPDN).
With an expense ratio of 0.63%, the SPDN ETF seeks daily investment results of 100% of the inverse (or opposite) of the performance of the S&P 500 Index.
