Sam Collins

Look for New Buy Signal From SDS

by Sam Collins   06/23/09

ProShares UltraShort S&P 500 (SDS) -- This exchange-traded fund (ETF) seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the S&P 500 index (SPX).

The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the S&P 500. I have regularly reviewed SDS, pointing to the number of buying opportunities over the course of the bear market.

On June 17, I wrote: "Now, with the strong possibility of a reversal in stocks following the big rally from the early March lows, there is the opportunity for a trade here.

"The SDS has pulled back to its major long-term support zone at $52 to $55, reversed on high volume, and penetrated the short-term downtrend line as well as the 20-day moving average -- and has held the double-bottom.

"Traders can look forward to a possible rebound to the 50-day moving average at $62, and perhaps even the 200-day moving average at $74."

This still our goal, but this is a volatile ETF, and it could pull back sharply on a reflex rally. Therefore, new positions should be entered on a pullback unless SDS closes above the 50-day moving average on high volume, which would give another strong buy signal.

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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks.