June Gloom? Buy These Inverse ETFs (FAZ, DRV, TWM)
April's market showers have not given way to May flowers. In fact, the showers have turned into a downpour among a batch of troubling economic data points and renewed concerns that the Euro Zone will not survive in its current state.
Fortunately, there are plenty of ways for traders to profit from bearish seasonal trends. As just one example from our recent look into sell in May and go away ETFs, the ProShares UltraShort Brazil (NYSE: BZQ) has surged 20% since the start of the month.
While June is still more than two weeks away, it's worth noting the six month of the year can be rocky one for the bulls as well. Two factors to be aware of: June is the last month in the eight-month cycle when the Nasdaq should be at its best and the end of June brings the end of the second quarter, meaning fund managers could either be doing a lot of window dressing or a lot of parting with losing positions.
Working on the assumption that June won't be much better than May, we went looking for inverse ETFs that could standout next month.
Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) Judging by the recent performance of financial services ETFs, thank-you very much J.P. Morgan Chase (NYSE: JPM) for assisting, the June gloom bank stocks typically face has started early this year. In the past five trading days, FAZ has jumped 8.2%.
That rapid increase speaks to an important point about not only FAZ, but leveraged ETFs in general. If one can make 8%-10% on one's initial investment in a week, there's no need to turn a trade into an investment because as quickly as FAZ can deliver 8%, it can take 10% away. FAZ, as are all the funds highlighted here, are short-term trading vehicles.
Direxion Daily Real Estate Bear 3X Shares (NYSE: DRV) The Direxion Daily Real Estate Bear 3X Shares has been a curious beast as of late, which is to say the ETF has barely moved higher in the past week as financials have come under assault and even as bank stocks have weakened considerably in the past month, REITs have held up well. DRV's 14.5% decline over that time indicates as much.
The risk with DRV is that the hunt for income and yield will keep pushing investors into REITs, which would punish DRV. On the other hand, the bull case for DRV is so simple it's almost trite: How long can REITs, which are viewed as financial services plays, hold up for if bank stocks are being taken to the woodshed?
ProShares UltraShort MSCI Emerging Markets (NYSE: EEV) Perhaps the trickiest thing about trading seasonal trends is that there are always years when a trend doesn't repeat. That could be the case this year for emerging markets ETFs this year, which were slaughtered starting in late May 2011, a situation that didn't abate until the October bottom.
There may be opportunities to do selective shopping with country-specific funds, but if ETFs such as the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) and the rival Vanguard MSCI Emerging Markets ETF (NYSE: VWO) are getting pounded in June, you'll want to be long EEV.
ProShares UltraShort Russell2000 (NYSE: TWM) Given how savagely the risk on trade has been repudiated lately, it's almost surprising to learn that the iShares Russell 2000 Index Fund (NYSE: IWM) isn't even down 2% in the past month. That just doesn't seem logical given the current state of affairs in the broader market. TWM is facing little in the way of resistance while IWM could easily fall back to its 200-day line before seeing next support, indicating TWM is one of the better ways to play small-caps over the next few weeks.
For more on seasonal investing with ETFs, please click HERE.
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