Time for an Inverse ETF Trade?

Inverse ETFs

I see too much risk and not enough gain in various bearish trades I've been looking at. Sure, I look at many charts and see textbook bearish setups. So this environment must be ripe for bear put spreads, long puts, and short stock trades, right? But with the money that keeps coming back into this market, these are not high probability trades right now.

The only bearish trades I am considering are SMALL (did I emphasize SMALL enough?) trades in inverse ETFs. Protect existing bullish trades with trailing stops and stop-losses. But for a little action on the downside, I am looking at my three favorite inverse ETFs. The reason I say SMALL trades is inverse ETFs are usually based on futures contracts (be sure to investigate the tax consequences) and can have significantly volatility.

SDS, the ProShares UltraShort S&P 500 fund, is a leveraged (2x) inverse ETF. It has been trading within a tight range between 28 and 29. The rising Stochastics indicator says the closing price is working its way up the recent range.

A breakout above this range would offer a decent probability trade, if a tight stop-loss was used (I would use 8%), AND a profit target in the area of 30 to 31 was used. If you get into an inverse ETF, place on getting out as soon as possible. Inverse ETFs, especially leveraged ones, are good for trades lasting a few hours to a few days. Any period longer than that and you are living on borrowed time.

The other two inverse ETFs I occasionally trade are SKF and FAZ. Both of them are leveraged inverse ETFs on the financial sector.

I actually expect a short-term low to be set in the market within the next several days. But for anyone who wants some downside protection, or a way to execute a trade to possibly land a several percent gain during what should be a brief market pullback, then an actively-traded inverse ETF may work for you.

High probability setups on stocks with strong seasonal track records, and the best ways to trade them, are covered in every issue of Seasonal Forecaster.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.