Bearish ETF Hits Key Level Not Seen Since 2020

An ETF that bets against tech is flashing a bullish signal

Managing Editor
Feb 4, 2022 at 10:58 AM
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We are taking a closer look at one of the several index exchange traded funds (ETFs) that saw a notable pull to within a 2% handle of their 200-day moving average prior to last week’s Federal Open Market Committee (FOMC) meeting. The Fed meeting, which closed out with Federal Reserve Chairman Jerome Powell suggesting interest rate hikes could come as soon as March, was of much anticipation for the broader market and investors alike, and partly to blame for Wall Street’s whipsaw price action throughout the week.

Per founder and CEO Bernie Schaeffer, there was a an amazingly diverse cross-section of index ETFs on "verge" of their 200-day trendline in the last week. This includes bonds to gold, equity to low-volume equity, and high-beta equity to leveraged inversed equity. One example we’ll highlight today is the ProShares UltraPro Short QQQ ETF (SQQQ), an inverse triple-leveraged Nasdaq-100 Index (NDX) play for the supremely bearish, which aims to return three times the opposite of the tech index's daily performance. On Monday, Jan. 24, SQQQ closed above its 200-day moving average for the first time since March 2020, and subsequently saw an unheard-of surge in open interest.

newSQQch1

Following the Fed meeting, the SQQQ has managed to extend its stay above the 200-day trendline, now eyeing its fourth-straight close above it, as of this writing on Jan. 29. This many consecutive closes above this key level has not happened since January of 2019. Now, the ETF is trading at six-month highs, continues to consolidate north of the $40 floor, and boasts a year-to-date lead of nearly 50%.

newSQQch2

It’s important to note from a historic perspective, that in the aforementioned January 2019 consecutive closes above the 200-day moving average, the outperformance was short-lived. It only lasted a few months, and subsequently, the SQQQ failed to move back above the trendline again until March 2020, the height of the coronavirus-fueled selloff. This period --which also triggered an avalanche of inflows -- is of course defined as the last time the investing landscape looked as volatile as it does now. The ProShares UltraPro Short QQQ carries a 37% year-over year deficit, so signals like the one --factored in with the healthy SQQQ returns in 2022, above serve as a stark reminder to the new reality investors now find themselves in to start the new year.

Subscribers to Chart of the Week received this commentary on Sunday, January 31.

 




 
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