June 23, 2008 at 2:00 pm by Tom Lydon
Does a double inverse exchange traded fund (ETF) give clues to which direction the market sentiment will go?
Trading volume was on the thin side last week, although it was time for options to expire, but not all volume is created equal. Bill Luby for Seeking Alpha keeps his eye on the volume of double inverse ETFs. These ETFs are attractive for bearish investors because of the double payoff if they are on the money.
Luby recommends the UltraShort QQQ ProShares (QID) which is the double inverse of the NASDAQ-100 index.
Last week was a rough one for investors, as the Dow Jones industrial average closed below the 12,000 mark on Friday. As a result, many of the top-performing ETFs were UltraShorts in a number of sectors and regions, including real estate, financials, consumer services, technology and Japan.
Clearly, investors are looking to keep the returns coming even as the market feels like it’s in a free-fall.
Before you get in, just know the potential risks, be aware of what you’re getting into and have the old exit strategy at the ready.
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