Sam Collins

Hedge the Market With a Quick Trade in SDS

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UltraShort S&P 500 ProShares (SDS) -- This exchange-traded fund (ETF) seeks daily investment results, before fees and expenses, that correspond to twice the inverse of the daily performance of the S&P 500 (SPX). The fund normally invests 80% of its assets in financial instruments with economic characteristics that should be inverse to those of the index.

With the strong possibility of a minor reversal in stocks following the big step-by-step rally from the early March lows, there may be an opportunity for a trade here. 

The SDS pulled back to its bearish support line and appears ready to bounce to the top of the channel.

This is a "traders only" ETF that is not suitable for long-term investment.

It would be wise to place a stop-loss at $36 and consider a "day trade" if it becomes available, since there appears to be evidence that longer-term trades in this leveraged ETF do not fully track the market.

There is also the risk of large capital gains or losses to be reported before year-end, so the impact of that on an investor's tax situation should also be considered before investing in inverse-leveraged ETFs.

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