Short/Ultra Short ETFs: Are Traders Being Squeezed into Submission?

It's been a very long time since one could question the sustainability of the short ETFs. Yet all of the short and ultrashort ETFs for the major U.S. benchmarks -- Dow, S&P, and Nasdaq -- dipped into near-term downtrends.

Consider the following:

Short And Ultra-Short ETFs Through 12/9/08						Near Term Moving Average (SMA 50)
ProShares Short Dow 30 (DOG)						-4.5
ProShares UltraShort Dow 30 (DXD)						-13.5
ProShares Short S&P 500 (SH)						-3
ProShares UltraShort S&P 500 (SDS)						-10
ProShares Short QQQQ (PSQ)						-1.5
ProShares UltraShort QQQQ (QID)						-7.5

Granted, after an 18.5%-21% run-up for U.S. large-caps, one would expect short-sellers to get "squeezed." The question then becomes, will the near-term trends have any lasting impact?

If so, it could be a painful lesson in the slaughter of greedier folk; specifically, those who have traded successfully on the short side have made a handsome and tidy sum. Nevertheless, those who refuse to pick up gains may discover that a permanent bet on the end of the world could erode the profits that they once had in their accounts.

In contrast, there's a reason the 50-day moving average is called a near-term trend: It doesn't always last! In fact, there's a fair distance to travel to break the long-term trendline (i.e., 200-day moving average). until that happens, bearish enthusiasts may still choose to explain that, "the worst is yet to come."

In my estimation, until volatility in intra-day price movement returns to more reasonable levels, most everything that one does is speculative at best. Therefore, use stop-losses judiciously. Moreover, sell to protect principal and/or lock in gains.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.