Bust A Move: Inverse ETFs Breaking Out (FAZ, BZQ, SCC)
ETF critics either don't know, overlook or intentionally ignore a key advantage of these products: They alleviate the burden of stock-picking for investors looking to establish long positions. Fortunately, inverse ETFs present traders and investors with the same advantage on the downside.
Inverse country and sector ETFs allow traders to exploit downside themes without the need for identifying the single best bearish play at the stock level. To be sure, inverse and leveraged ETFs require due diligence and the realization these are short-term trading vehicles.
With that important disclaimer out of the way, recent weakness in U.S. equities has damaged the charts of plenty of marquee stocks along with a large number of traditional long country and sector funds. Said differently, some of the best looking charts in the ETF universe at the moment are found with inverse funds. Consider the following:
ProShares UltraShort Brazil (NYSE: BZQ) Indeed, we just highlighted BZQ a few days ago, but the chart keeps on improving for this double-leveraged inverse play. That is to say the charts for Brazil funds such as the iShares MSCI Brazil Index Fund (NYSE: EWZ) keep getting worse, not better.
On Monday, Benzinga noted that EWZ was down about 17% from its 2012 peak and that a 20% decline from that top puts the ETF in bear territory. Well, EWZ is down another 2% today we're getting closer to bear market territory. While EWZ is breaking down, BZQ is trying to breakout. Late comeers should watch for a move above $18, which could foretell a move to $20.
Direxion Daily Gold Miners 3X Bear Shares (NYSE: DUST) Can you remember the last time anyone had anything to say about the Market Vectors Gold Miners ETF (NYSE: GDX) or the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ)? We can't either. On a seemingly daily basis, GDX and GDXJ make new 52-week lows.
Gold miners underperformed gold futures on the upside and now that gold is being treated as a risk asset, the miners are getting slammed on the yellow metal's downside. There very well could be a day when gold's safe haven status is restored and the miners rally. Problem is that day isn't likely to arrive in the next week or even the next month. DUST is simply the best way to play the miners at this juncture.
ProShares UltraShort Oil & Gas (NYSE: DUG) Arguing against the long-term bull case for oil stocks is tricky business. In the near-term, however, concerns about Europe's sovereign debt crisis and U.S. and Chinese economic growth are killing oil prices. Of course, that's bad news for funds such as the Energy Select Sector SPDR (NYSE: XLE), the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) and comparable rivals.
As those charts have broken down, DUG's has improved in impressive fashion. Watch for DUG to take out its 200-day moving average and offer more near-term upside.
ProShares UltraShort Consumer Services (NYSE: SCC) Give high-end retail and discretionary names some credit. They've held up pretty well. Until today that is. As just three examples, the charts of Coach (NYSE: COH), Michael Kors (NYSE: KORS) and Tiffany (NYSE: TIF) are unappealing right now. SCC is the way to play this trend. For those that need convincing, consider this: SCC's average daily volume is about 8,000 shares. More than 39,000 shares in the ETF have already changed hands today.
Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) Hopefully, the Direxion Daily Financial Bear 3X Shares will never see the $700 area as it did back in early 2009. It probably won't, but bank stocks were leaders in the first quarter. Bank of America (NYSE: BAC) was the best performer in the Dow Jones Industrial Average in Q1.
Welcome to Q2 and sell in May and go away. Bank of America? Hammered. The Financial Select Sector SPDR (NYSE: XLF)? Vulnerable at best. FAZ just took out its 50-day moving average, perhaps indicating more upside is on the way.
For more on inverse ETFs, please click HERE.
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