Published September 05, 2012
Two trading days into September, it is fair to say the broader market is not doing much of anything...yet. Strong trends in either direction have yet to emerge, but traders can take heart in knowing that September is not a good month for stocks.
In fact, the ninth month of the year is usually quite harsh to equities and that could create opportunities with select inverse ETFs. Add some leverage to the mix and those traders willing to take on some added risk can make this a September to remember (from the downside) with the following ETFs.
ProShares UltraShort FTSE China 25 (FXP) First, the risks with FXP and those go beyond the fact that this is a double-leveraged product. There has been rampant talk about Chinese stimulus and the Peoples' Bank of China could act at any moment to lower interest rates. Either scenario would be damaging to FXP.
On the other hand, it must be noted the iShares FTSE China 25 Index Fund (FXP), the ETF that FXP is the inverse equivalent of, is in the midst of tailspin. FXI traded above $35 as recently as early August. If support for FXI gives out at $32, FXP will run even more. Chinese equities are cheap on a valuation basis, but have been for months. Investors do not appear to be taking the bait, at least not with FXI and that bolsters the near-term bull case for FXP.
ProShares UltraShort QQQ (QID) The ProShares UltraShort QQQ is another double-leveraged ETF with near-term risk that cannot be overlooked. If Amazon's (AMZN) new tablet and Apple's (AAPL) latest iPhone, both due to be introduced in the coming days, wow consumers, QID could suffer. Those stocks account for 23.5 percent of the weight of the PowerShares QQQ (QQQ), the Nasdaq 100 tracking ETF. QID is the double-leveraged inverse equivalent of QQQ.
Of course, not every new tech gadget thrills consumers and investors. In addition, September is typically a weak month for semiconductor stocks and that is one credible reason to evaluate QID. QID really needs a move above $30 to stoke some fresh buying.
ProShares UltraShort Silver (ZSL) Of the three ETFs highlighted on this list thus far, ZSL is by far the riskiest. An almost 16 percent gain in the past month for the iShares Silver Trust (SLV) underscores the risks involved with betting against volatile silver. Over the same time, ZSL has plunged 27 percent.
The past three Septembers show no strong trend with SLV. The ETF was basically flat in September 2009, notched a gain in September 2010 and was taken the woodshed last September. In other words, a bet on ZSL right now is bet that SLV is overbought and that is extremely risky. Just because a security is overbought does not mean it is destined to decline.
The problem with ZSL is it can be seductive. During its last truly bullish move in June, the fund surged from around $57 to almost $75. Not bad for four weeks of work, but traders must know a sequel is not guaranteed.
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