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Three ETF’s To Consider for a Potential Market Rebound
“Success is how high you bounce when you hit bottom” – General George S. Patton
Good day members,
As the market continues its wild volatility, it is time to prepare for a potential run on the horizon… if and only if the S&P 500 cooperates in today’s trading. Over the course of the past several issues, we’ve concentrated our efforts on profiting from the drop in the major indexes. We predicted a strong correction over two months ago and at that time suggested looking at SPXS, SPXU and SDS.
All three have done absolutely fantastic offering members enormous gains. But while the market may continue to drop even further, now is time to put some stocks and ETF’s on our radar for the preparation of going long. Once a turnaround is confirmed, we’ll want to be ready.
As of this writing, after market September 1st, the S&P 500 is still trading near the 10% correction level of 1,920, Canada just announced its economy is in recession (no doubt caused by the commodities collapse) and the Chinese market continues to struggle. With all this bad news bombarding our trading accounts, it’s time to get contrarian… because the stock market always rebounds at some point, always. We’ll be ready.
And what better way to make a killing in the market than preparing for the very opposite of how we murdered it with SPXU, SPXS and SDS. Let’s have a look at the bullish S&P 500 ETF’s and discuss when the signal to buy could happen.
But before we get into that, we want to alert members to a few news stories that came out on Pilgrim’s Pride PPC (covered in the August 19th issue).
On August 28th, Benzinga put out a story titled “4 U.S. Stocks Set To Defy the China-Triggered Selloff” (available here). One of the 4 stocks Benzinga believes will defy the selloff is PPC.
On September 1st (Monday) TheStreet.com published an article entitled “5 Food Stocks Investors Should Gobble Up” (available here). One of those stocks, PPC.
So other publishers obviously read our take on Pilgrim’s Pride and have hopped aboard… or more likely, they’re just a week and a half behind us. Anyhow, if you haven’t reviewed PPC, have a look today.
Back To The Future
Now that the S&P 500 is sitting near its correction level and could potentially begin trading higher, let’s have a look at three ETF’s that are long 2x and 3x the index. Now, remember, now may NOT necessarily be the time to go long any of these. We don’t know if a bottom has been put in yet… and we’re not trying to find a bottom; we’re interested in confirming a reversal and then going long. So here we go:
Direxion Daily S&P500 Bull 3X ETF (SPXL)
The investment seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P 500® Index. The fund creates long positions by investing at least 80% of its assets in the securities that comprise the S&P 500® Index and/or financial instruments that provide leveraged and unleveraged exposure to the index. These financial instruments include: futures contracts; options on securities, indices and futures contracts; equity caps, floors and collars; swap agreements; forward contracts; short positions; reverse repurchase agreements; exchange-traded funds; and other financial instruments. It is non-diversified.
Direxion Daily S&P 500 Bull 2X ETF (SPUU)
The investment seeks daily investment results, before fees and expenses, of 200% of the performance of the S&P 500® Index. The fund creates long positions by investing at least 80% of its assets in the securities that comprise the S&P 500® Index and/or financial instruments that provide leveraged and unleveraged exposure to the index. These financial instruments include: futures contracts; options on securities, indices and futures contracts; equity caps, floors and collars; swap agreements; forward contracts; short positions; reverse repurchase agreements; exchange-traded funds; and other financial instruments. It is non-diversified.
ProShares Ultra S&P500 (SSO)
The investment seeks daily investment results that correspond to two times (2x) the daily performance of the S&P 500®. The fund invests in securities and derivatives that ProShare Advisors believes, in combination, should have similar daily return characteristics as two times (2x) the daily return of the index. The index is a measure of large-cap U.S. stock market performance. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected through a process. The fund is non-diversified.
All three of these ETF’s, for obvious reasons, crashed along with the S&P 500 in the past few sessions. If the coming days/weeks confirm a bottom is in and a reversal is in order, all three of these could deliver double digit returns for those who long.
What we want to look for is the S&P 500 bouncing around the 1,920 line then running and breaking over 1,990. Once this happens we should definitely consider longing these ETF’s as the index would be set up to make new all time highs.
Conversely, if the S&P drops below 1,900 there could be an additional selloff to at least the recent lows and the signal of a potential bear market. In this instance, we’d want to forget these ETF’s altogether and revisit the short ETF’s instead.
So the trading in the S&P 500 today is critical, so keep your eyes peeled. Here are two things to look for and perhaps act on in today’s session: *note, this article was written after market on Sept.1st so we have no idea what the futures are looking like on Sept.2.
- If S&P 500 hits 1,900 and breaks down again, we could be in for a bloodbath (revisit those S&P 500 2x and 3x Bear ETF’s if this happens).
- If we can get back to 1,990 and higher (not likely to happen in 1 day), the good times could be back and the 2x and 3x Bull ETF’s described above would be ready to rip.
But be careful, there’s no need to push any buy or sell buttons just yet… but get ready, one of those triggers will be hit very soon, and you’ll be ready!
“I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.”
Until next time…
Here’s to good investing
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