Even with Tuesday’s 1.1% loss, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is up 2% in the past month.
That is the good news. The bad news is that EEM is still down 3.1% year-to-date. Add to that, the second-largest emerging markets ETF by assets is running into some technical resistance that could indicate nimble traders may want to consider a short-term bearish trade.
“The stalling action as EEM bounces into resistance of its 50-day moving average presents us with a low-risk entry point on the short side,” notes Deron Wagner of Morpheus Trading Group.
But rather than short EEM, traders can be long the Direxion Emerging Markets Bear 3X Shares (NYSEArca: EDZ). EDZ attempts to deliver three times the daily inverse performance of the MSCI Emerging Markets Index, EEM’s underlying index. When emerging markets equities tumbled in January, EDZ ranked as one of Direxion’s top-five leveraged bearish ETFs, posting a gain north of 28%. [Inverse ETFs for Volatile Emerging Markets]
Traders looking to ratchet back the leverage a bit while still taking advantage of outsized gains as emerging markets stocks fall can consider the double-leveraged UltraShort MSCI Emerging Markets ProShares (NYSEArca: EEV).