Sign InProShares UltraPro Short QQQ: A Hedge Against Tech Stocks in Market Downturns
Summary
As of August 18, 2023, the ProShares UltraPro Short QQQ (SQQQ) is a short or leveraged inverse ETF that has experienced a significant plunge this year, indicating a rally in technology stocks, and while it may undergo a correction in the near term due to a high RSI, it could potentially benefit from a market downturn, making it a recommended hedge against risky assets.
Fundamental Analysis
The ProShares UltraPro Short QQQ's ticker $SQQQ signifies that it is a short or leveraged inverse exchange traded fund (ETF) that moves in the opposite direction to the Nasdaq-100 Index. This means that if the index moves up, SQQQ would go down and vice versa.
Considering that SQQQ has seen a plunge of over 65% this year, it's likely there was a substantial rally in the technology stocks. As an inverse leveraged ETF, this trend is expected. Also noteworthy is the first two-week drop in Nasdaq ETFs in 2023, which might lead to a slight resurgence in SQQQ's prices if the trend continues. Moreover, this fund is recommended as one of the best ETFs for pessimists, signalling potential profit opportunities during market downturns.
In the current state, the ProShares UltraPro Short QQQ does not pay dividends, and has an EPS of zero, rendering the P/E ratio as non-applicable. Moreover, due to the nature of SQQQ being closely tied to the NASDAQ-100 Index, major shifts in the underlying stocks will directly impact its performance.
Technical Analysis
On August 18, 2023, SQQQ closed at $20.88, with a 0.48% increase over the previous day. The trading volume of 163.25 million was well above the average volume of 122.63 million, indicating increased trader interest. As for its prices, SQQQ is trading within its 52-week range, with a high of $69.55 and a low of $16.38.
Furthermore, the Relative Strength Index (RSI) of 81 indicates that SQQQ is currently in an overbought condition, implying a potential price correction in the near term. Meanwhile, the Moving Average Convergence Divergence (MACD) of 0.35 also suggests a bullish trend.
However, the 50-day Moving Average coming in at $18.99 is below the current price, indicating a short-term bullish trend. This contrasts the 200-day Moving Average of $33.88, which is significantly higher than the current price, suggesting a bearish long-term trend.
Price Prediction and Final Evaluation
Considering the current technical indicators, the stock might undergo a correction due to its high RSI. However, due to its nature as an inverse ETF, if there’s a market downturn, SQQQ could potentially benefit.
For the immediate next trading day on August 21, 2023, SQQQ might trade around its close price of $20.88, with some volatility expected due to the high Average True Range (ATR) of 3.98. In the upcoming week, predicting the exact value is challenging as it depends on the performance of the underlying NASDAQ-100 Index. However, with the support level at $19.78 and the resistance level at $22.84, the stock price will likely oscillate within this range, barring any significant changes in the market sentiment.
In conclusion, it's advisable to hold onto $SQQQ if you own it, to hedge against potential market downturns. For potential investors, buying it now could provide a hedge against risky assets in the portfolio, especially running into any potential downshift in the dynamics of tech stocks. However, it must be kept in mind that SQQQ is not meant for long-term holding due to the effects of leverage decay and its performance is inextricably tied to the behavior of the NASDAQ-100 Index.
