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Massive Buying In SQQQ Indicates A Bear Market Bottom

Michael James McDonald profile picture
Michael James McDonald


  • Massive buying of the bear fund ProShares UltraPro Short QQQ ETF confirms what other contrary opinion indicators have been saying - that we have probably made a major bear market bottom.
  • At its peak, daily purchases sometimes reached over 400% of the assets in the fund.
  • This was almost double the buying levels in the fund at the worst of the 2020 COVID bear market.

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Contrary Opinion Indicators

We wrote three articles in July explaining how numerous contrary opinion indicators are pointing to the end of this bear market. This was done to document the power

This article was written by

Michael James McDonald profile picture
Michael James McDonald is a stock market forecaster, author and former Senior Vice President of Investments at what is now Morgan Stanley. He is a long-term advocate of the theory of contrary opinion and the measurement of investor sentiment when forecasting price direction.His first book, " A Strategic Guide to the Coming Roller Coaster Market" was published in June of 2000, three months before the top of the dot comm market. On its cover was written, "How a new model of the stock market predicts the end of the 18-year bull market (1982-2000) and the beginning of a new era." The "new era" was to be a long-term (roller coaster) trading range market, which did materialize between 2000 and 2009.Then, on August 31st, 2010, in a SA article titled: "The 10 Year Trading Range Is Over - The 'Final Stampede' Has Begun", he called an end to this trading range market and the beginning of another long-term bull market, which also came about. Through his company the Sentiment King, he continues to study and do what he loves - research and attempt to successfully forecast major stock trends - and help others see them too.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of QQQ, SPY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (42)

manfmnantucket profile picture
well, this aged well...$40 at Strong Sell, $60 today after SPY falls another 14% lol. 50% gain on sqqq
A lot of retail continue to think that the economy and the stock market are directly correlated. They're not. The market is already looking waaaay ahead to next year when CPI and PPI prints will be way lower. Interest rates will start to decline over the next 6-18 months as well. That means Tech will lead the way. The SQQQ is not what you want to buy. You will lose a lot of money!
@Blue Goose Well the FED and all its mouthpieces are saying interest rates are headed over 4% and will not be cut in 2023....So that would make growth tech stocks a place where you lose a lot of money!
@YO long-short They also said inflation was transitory a year ago.
Just look at prices of so many things that have come down and continue to decline. Lumber, crops, and many other commodities. Look at the baltic dry index.
Many of the supply issues created by covid are almost back to normal.
The war will most likely be over within the next year.
Look ahead.
@Blue Goose Even if prices inflated at 0.0 to end of year we still will be at 6% inflation by year end so expect 4% fed rate by 2023. Then you will get a recession of some kind so growth will shrink. Lastly rents and wages tend to be sticky unlike goods so inflation will be with us for most of 2023. The next 2 years will likely be slow growth and VALUE stocks with dividends like oil and gas will lead not tech growth. That will slump
Your week's away from being crushed.
huthutho profile picture
Contrarian opinions are, well.. contrarian! I liked your first article a great deal and appreciate your posting this follow-up on SQQQ. Whether it turns out to be a bear market rally or the start of digging out of a shallower recession than expected by many, we'll have to wait to see. I'm trying to understand the bond market's view/impact, and looking at PSLDX management's strategy.
David Vord profile picture
Have we really created more wealth since 2019? If so, have we created 50% more wealth since 2019?

Climate change will be affect the economy sooner or later, China will invade Taiwan sooner or later. It's only a matter of time until investors realize this.

Your reverse psychology point is well taken but on the other hand, we haven't had a crash like 2008 since... 2008. I'm curious how oversold SQQQ would've been then.
@David Vord its only a matter of time’ - indeed. The interesting question is the forward calendar. And no one has a clue. How much time?
David Vord profile picture
@Prudencepreferred When will China invade Taiwan? Probably within Xi's lifetime. When will we get f-ed by climate change? We already are. The thing is, these things are catastrophic, they're not just going to cause the bubble to pop, they're going to make it so we have to change our lifestyles fundamentally. When will investors realize this? I have no idea, but the fact SQQQ is being bought a lot, and the fact the VIX is still very high relative to the past, indicates people are fearful. That's all I know.
@David Vord Waiting on a black swan event is a very bad investing plan!
Stevlg profile picture
And then there’s the extinction of
Black swans of comfort…..
stumpy58 profile picture
This article is, itself, the contrary opinion.
Bilbozark profile picture
Bam! No speculation, just watching the Market. If you want to eat venision, go to where the deer are, but first you have to be a patient observer.
swilner profile picture
Is the data behind this indicator available on the Proshares website?
My most accurate indicator is the contrarian indicator, but it's on the SA's articles of opinions such as this one. I don't have the crystal ball, nor the author. But if history is any guide, my contrarian will be more correct than the author's. We'll see.
Both NASDAQ and NASDAQ 100 had a bullish engulfing candle reversal for the month of July. This is significant as bullish engulfing candle reversal marked the lows of Nov. 1990, March 2009, Oct. 2011 and April 2020. They all marked significant turning points/bottoms.

My view is that we have a good August, followed by a typically weak Sept. Pullbacks are buying opportunities. See Ned Davis's Cycle Composite for the calendar 2022 trade-- it has been spot-on so far in 2022, like it was in 2021.
Or, people could be buying the fund, because they believe that a market crash is imminent, that would be more logical.
@Fast_Times They're going to lose a lot of money.
The market is already 25% higher than the bottom.
Michael James McDonald profile picture
@G_X_C Yes it is. As I said this article is an addendum to the original article which was written June 30th when the market was a few points off the bottom. It just verifies what that article said about the market. As I said, I omitted covering SQQQ (I covered the bear funds SH, PSQ and DOG) in the original article and its being added here for completion.
@G_X_C right, and 25% higher in such a short time frame so we know very well how this is not sustainable and where it will end up.
@G_X_C Old habits are hard to get rid of. Dip buying is still alive. This market is still full of TINA, FOMO,and FANG traders.
This article makes no sense.
Michael James McDonald profile picture
@KeepEmotionsOut This is an article about contrary opinion. I think the original article better explains what's going on. Remember, this is an addendum on that article. Please read.
Michael James McDonald profile picture
@KeepEmotionsOut I think it will make better sense if you read the original article. This whole thing is about measuring contrary opinion.
@Michael James McDonald thanks but there will always be some options and then contrary side to everything. I will read the article again but doesn’t understand how it fits in.
j. hughes profile picture
I am afraid you are clutching at straws, Mr. McDonald. I wish you luck, you will need it.

The fed is taking $1.1T out of bond purchases and selling another $1T off its balance sheet and raising rates.

Its a buy!
Be kind, Be wise, Be wealthy profile picture
Why would someone buy SQQQ if they thought we are at the bottom or low in bear market? They would be buying TQQQ?
@Be kind, Be wise, Be wealthy They're buying SQQQ because the majority believe a bigger drop is coming. If you believe in reverse psychology it indicates the market has hit bottom.
Be kind, Be wise, Be wealthy profile picture
@seek2945 if they think a bigger drop is coming then they would not think we are at the bottom or major low. The message above seems conflicting.
Michael James McDonald profile picture
@Be kind, Be wise, Be wealthy This is an article about contrary opinion. I think the original article better explains what's going on. Remember, this is an addendum on that article
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

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