SPDN: An Inexpensive Way To Profit When The S&P 500 Falls

Summary
SPDN is not the largest or oldest way to short the S&P 500, but it’s a solid choice.
This ETF uses a variety of financial instruments to target a return opposite that of the S&P 500 Index.
SPDN’s 0.49% Expense Ratio is nearly half that of the larger, longer-tenured -1x Inverse S&P 500 ETF.
Details aside, the potential continuation of the equity bear market makes single-inverse ETFs an investment segment investor should be familiar with.
We rate SPDN a Strong Buy because we believe the risks of a continued bear market greatly outweigh the possibility of a quick return to a bull market.
Put a gear stick into R position, (Reverse).
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By Rob Isbitts

Summary
The S&P 500 is in a bear market, and we don’t see a quick-fix. Many investors assume the only way to navigate a potentially long-term bear market is to hide in cash, day-trade or “just hang in there” while the bear takes their retirement nest egg.

The Direxion Daily S&P 500® Bear 1X ETF (NYSEARCA:SPDN) is one of a class of single-inverse ETFs that allow investors to profit from down moves in the stock market.

SPDN is an unleveraged, liquid, low-cost way to either try to hedge an equity portfolio, profit from a decline in the S&P 500, or both. We rate it a Strong Buy, given our concern about the intermediate-term outlook for the global equity market.

Strategy
SPDN keeps it simple. If the S&P 500 goes up by X%, it should go down by X%. The opposite is also expected.

Proprietary ETF Grades
Offense/Defense: Defense

Segment: Inverse Equity

Sub-Segment: Inverse S&P 500

Correlation (vs. S&P 500): Very High (inverse)

Expected Volatility (vs. S&P 500): Similar (but opposite)

Holding Analysis
SPDN does not rely on shorting individual stocks in the S&P 500. Instead, the managers typically use a combination of futures, swaps and other derivative instruments to create a portfolio that consistently aims to deliver the opposite of what the S&P 500 does.

Strengths
SPDN is a fairly “no-frills” way to do what many investors probably wished they could do during the first 9 months of 2022 and in past bear markets: find something that goes up when the “market” goes down. After all, bonds are not the answer they used to be, commodities like gold have, shall we say, lost their luster. And moving to cash creates the issue of making two correct timing decisions, when to get in and when to get out. SPDN and its single-inverse ETF brethren offer a liquid tool to use in a variety of ways, depending on what a particular investor wants to achieve.

Weaknesses
The weakness of any inverse ETF is that it does the opposite of what the market does, when the market goes up. So, even in bear markets when the broader market trend is down, sharp bear market rallies (or any rallies for that matter) in the S&P 500 will cause SPDN to drop as much as the market goes up.

Opportunities
While inverse ETFs have a reputation in some circles as nothing more than day-trading vehicles, our own experience with them is, pardon the pun, exactly the opposite! We encourage investors to try to better-understand single inverse ETFs like SPDN. While traders tend to gravitate to leveraged inverse ETFs (which actually are day-trading tools), we believe that in an extended bear market, SPDN and its ilk could be a game-saver for many portfolios.

Threats
SPDN and most other single inverse ETFs are vulnerable to a sustained rise in the price of the index it aims to deliver the inverse of. But that threat of loss in a rising market means that when an investor considers SPDN, they should also have a game plan for how and when they will deploy this unique portfolio weapon.

Proprietary Technical Ratings
Short-Term Rating (next 3 months): Strong Buy

Long-Term Rating (next 12 months): Buy

Conclusions
ETF Quality Opinion
SPDN does what it aims to do, and has done so for over 6 years now. For a while, it was largely-ignored, given the existence of a similar ETF that has been around much longer. But the more tenured SPDN has become, the more attractive it looks as an alternative.

ETF Investment Opinion

SPDN is rated Strong Buy because the S&P 500 continues to look as vulnerable to further decline. And, while the market bottomed in mid-June, rallied, then waffled since that time, our proprietary macro market indicators all point to much greater risk of a major decline from this level than a fast return to bull market glory. Thus, SPDN is at best a way to exploit and attack the bear, and at worst a hedge on an otherwise equity-laden portfolio.

S&P 500 Rallies As U.S. Dollar Pulls Back Towards Weekly Lows

Key Insights
The strong pullback in the U.S. dollar provided significant support to stocks.
Treasury yields have pulled back after touching new highs, which served as an additional positive catalyst for S&P 500.
A move above 3730 will push S&P 500 towards the resistance level at 3760.
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Pfizer Rallies After Announcing A Huge Price Hike For Its COVID-19 Vaccines
S&P 500 is currently trying to settle above 3730 as traders’ appetite for risk is growing. The U.S. dollar has recently gained strong downside momentum as the BoJ intervened to stop the rally in USD/JPY. Weaker U.S. dollar is bullish for stocks as it increases profits of multinational companies and makes U.S. equities cheaper for foreign investors.

The leading oil services company Schlumberger is up by 9% after beating analyst estimates on both earnings and revenue. Schlumberger’s peers Baker Hughes and Halliburton have also enjoyed strong support today.

Vaccine makers Pfizer and Moderna gained strong upside momentum after Pfizer announced that it will raise the price of its coronavirus vaccine to $110 – $130 per shot.

Biggest losers today include Verizon and Twitter. Verizon is down by 5% despite beating analyst estimates on both earnings and revenue. Subscriber numbers missed estimates, and traders pushed the stock to multi-year lows.

Twitter stock moved towards the $50 level as the U.S. may conduct a security review of Musk’s purchase of the company.

From a big picture point of view, today’s rebound is broad, and most market segments are moving higher. Treasury yields have started to move lower after testing new highs, providing additional support to S&P 500. It looks that some traders are ready to bet that Fed will be less hawkish than previously expected.

S&P 500 Tests Resistance At 3730

S&P 500 has recently managed to get above the 20 EMA and is trying to settle above the resistance at 3730. RSI is in the moderate territory, and there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

If S&P 500 manages to settle above 3730, it will head towards the next resistance level at 3760. A successful test of this level will push S&P 500 towards the next resistance at October highs at 3805. The 50 EMA is located in the nearby, so S&P 500 will likely face strong resistance above the 3800 level.

On the support side, the previous resistance at 3700 will likely serve as the first support level for S&P 500. In case S&P 500 declines below this level, it will move towards the next support level at 3675. A move below 3675 will push S&P 500 towards the support at 3640.

How Does Gardening Relieve Stress?

One of my favorite activities is working in my garden; it is also a vibrant place to meditate, often visited by various winged and four-legged creatures. Being in nature, touching the soil and creating a living landscape is healing in a way that is like nothing else. The very fragrance of the soil, the textures of the barks and foliage of green plants, the aromatic flowers, all are a work of art that is soothing to the spirit.Gardening is a creative work, all in magnificent 3-D. The pallette you have to work with includes textures, colors, shapes, sounds and scents. You can plant for wildlife, or for butterflies. Rain gardens are a beautiful way to deal with runoff from the roof, while recharging the local water table instead of sending rainwater down the city sewer system.Granted, all this may not work for you if you don’t like gardening. Even if you love the idea of gardening, and perhaps have some experience or helped your mother or grandmother in the garden when you were a child, it is important that it not be a chore. The easiest first mistake is to take on too much, and find that instead of being a stress relief you are stressed because the goals you set are unrealistic.Rather than end up with a stressful responsibility that has become overwhelming, it is far better to enjoy a potted plant or a single container garden on the patio, or a hanging planter or two by the walkway to greet you with their cheerful color, than to stress out over a large garden that has run to weeds due to lack of available time.Keep it simple, start small… Or even, start tiny, even indoors with a little terrarium, or a potted group of cactus. One plant that I consider important to keep in the house is an aloe plant. It is hardy, doesn’t mind indoors as long as the humidity doesn’t get too low, and is a wonderful medicinal herb for minor burns, scratches and bruises. Another fun idea, especially if you love to cook, is to keep a small window herb garden. For more information on growing your own kitchen herbs, check out the Organic Gardening website with a great web page on growing herbs indoors.A garden is a way to connect with nature, to slow down and be in the moment, and restore a sense of self in the noise and haste of the modern urban environment. Leave the phone and other noisemakers and distractions inside. Get a break from computer screens, TV screens, hand-held device screens and relax your gaze to take in a wider view. If you’ve ever suffered chastisement in school from indulging in the simple pleasure of looking out the window at beautiful clouds, you know what I mean.My avocation is natural areas restoration; I am a member of a not-for-profit group that is working to set aside natural areas for wildlife habitat. We restore these areas as close as possible to their pre-settlement condition, with native plants and clean waterways. Of course, once the native plant community returns, the wildlife shows up in abundance. You may enjoy creating an ecosystem in your yard that not only features native plants, but will attract wildlife such as endangered butterflies, dragonflies, and birds. The National Wildlife Federation website has great information on how to create wildlife habitat in your yard or community. Again, be realistic and take things in small bites; this is a process. If nothing else, nature encourages us to slow down, take our time to enjoy. Take on too much and we soon fall into stress and anxiety over arbitrary, ultimately unsatisfying goals that we have set for ourselves. You know what Pogo said, “We have met the enemy and he is us”.If you live in an apartment and don’t have garden space, you may want to consider joining in with the local community garden – or start one. The local community or neighborhood garden can also provide, if you wish, an opportunity to enjoy the benefit of social interaction.Gardening provides a sense of accomplishment – that is, if we’ve not overwhelmed ourselves with too much to take care of. Not only that, but there is great satisfaction in growing our own vegetables, fruits and fresh herbs. There is no fruit or vegetable in the supermarket, however much money is paid out, that will compare with your home-grown, lovingly cared for vegetable. No matter that it may be a simple container-grown cherry tomato. For a great article on the best tomatoes for container growing, check out what Colleen Vanderlinden has to say, based on her personal experience.There is even a movement called “geo-sense” gardening coming out of Europe. The idea is to design home gardens to provide stress relief. The tradition has deep roots, according to an article by Dr. Leonard P. Perry, Extension Professor at the University of Vermont. The ancient gardens of great civilizations of Egypt, Persia and China were designed to bring nature into their urban environments. Dr. Perry’s article contains ideas to incorporate into your garden to make it an environment – a mini ecosystem – that is designed for serenity.In traditional Japan, the garden was an expression of Zen philosophy. In an article on the Japanese Garden website, Dr. Koichi Kawana explains the philosophy behind traditional Japanese garden design. The Helpful Gardener website is another great website describes the traditional Japanese Garden, and its underlying Zen philosophy.The garden, whether it is a large plot or a simple miniature ecosystem in a container, embodies many things; spiritual philosophy, connectedness with nature, a living artistic creation, being grounded with our hands literally in the dirt, growing and providing ourselves and loved ones with our own superb food. All these things are the bounty that nature provides – freely given, asking for just a little touch of loving hands.If you enjoy gardening, tell us about your experiences, and whether or not you find gardening to be relaxing. Do you find it a challenge to find the time you want to work in the garden? Have you been challenged by trying to do too much? How do you balance the enjoyment with the work needed to keep your garden in good shape? Are you an “au natural” gardener, or do you prefer a neat and orderly design? Does it seem to bring you closer to nature, or even to a meditative, spiritual experience?If you have found this article to be helpful, please do share it with your friends using the social media buttons below.