Play These Inverse ETFs To Profit From Market Bloodbath

Wall Street, which hitmultiple highs last year, hit the wall on rising rate worries at the start of this year. Just as it tried to gain ground, President Donald Trump started slamming back-to-back import tariffs this month, stoking trade war fears (read: 8 Must-Watch ETFs if Trump Slams Tariffs on China by Friday).

First, he ordered levying of duties on steel and aluminum imports, then the administration announced tariffs worth about $60 billion against China for intellectual property theft. Bank of America Merrill Lynch (NYSE:BAC) Fund Manager Survey now sees trade war as the key risk to the broader market rally, as quoted on CNBC.

As many as 30% of respondents are spooked by trade fears, while inflationary worries took the second spot with 23% votes followed by global growth (thanks to Brexit) taking 16%. Also, the Fed hiked interest rates this week and gave hawkish signals for 2019 and 2020.

The Federal funds rate projections for 2019 was upped to 2.9% from 2.7% while the rate is guided to accelerate to 3.4% from 3.1% for 2020. Over the longer term, the rate is projected to be 2.9%, up from the December forecast of 2.8% (read: 5 ETFs to Profit From Fed Activity & Guidance).

Fears of gradual ceases in easy money inflows obviously will not be liked by the broader market. Global central banks are on the way to interest-rate hikes at the quickest clip since 2011, according to Deutsche Bank AG (DE:DBKGn). Needless to say, the broader market is likely tohave a tough ride in the days ahead.

"Cracks in the bull case are starting to emerge, with fund managers citing concerns over trade, stagflation and leverage," said Michael Hartnett, chief investment strategist at BofAML, though optimism around strong corporate earnings can’t be ruled out.

Bloodbath in the Market

The news of import tariffs pushed last year’s hot index Dow Jones Industrial Average to the negative territory. The Dow Jones-based fund SPDR Dow Jones Industrial Average ETF (V:DIA) was off about2.9%. The fund has lost about 3.5% this year and is on its way to post its “worst March since 2001.”

The S&P 500-based fund SPDR S&P 500 ETF (AX:SPY) and the Nasdaq-100 based ETF PowerShares QQQ ETF QQQ were down about 2.5% each on Mar 22, 2018. The fund is off about 2.3% so far this year (as of Mar 22, 2018).

U.S. small-cap fund iShares Russell 2000 ETF IWM lost about 2.2% while all-world fund iShares MSCI ACWI ETF ACWI retreated about 2.4% on Mar 22, 2018 and China large-cap fund iShares China Large-Cap ETF (TE:FXI) fell more than 3.8% on Mar 22.

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities at least for the near term. Below we highlight a few of them.

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 DOG (up 3% on Mar 22), ProShares UltraShort Dow30 (V:DXD) (up 6% on Mar 22) and ProShares UltraPro Short Dow30 SDOW (up 8.8% on Mar 22).

China

Obviously, things will be unsteady in China too given the trade tension. Some of the China-related inverse plays are Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD (up 2.8%),Direxion Daily China 3x Bear Shares YANG (up 11.8%), ProShares UltraShort China 50 FXP (up 7.6%) and ProShares Short FTSE China 50 YXI (up 3.9%) (read: China Had a Strong Start in 2018: ETFs to Buy).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF SH (up 2.6% on Mar 22) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 2.5% on Mar 22).

Nasdaq

ProShares Short QQQ (AX:PSQ) (up 2.5% on Mar 22), ProShares UltraShort QQQ QID (up 5.2% on Mar 22) and ProShares UltraPro Short QQQ SQQQ (up 7.4% on Mar 22) are good to play against Nasdaq (read: Is the Rout in Tech ETFs Transitory?).

Small-Cap

One can short small-cap U.S. equities with ProShares Short Russell2000 (NYSE:R) (up 2.1% on Mar 22).

EAFE

ProShares Short MSCI EAFE EFZ (up 1.8% on Mar 22) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the global trade fear.

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