I wanted to show you quickly the structure of the SDS (Ultra-Short S&P 500 ETF) to point out an interesting structure and also see how the price compares to that of the S&P 500.

SDS Daily Chart:

For newer traders, the SDS is a fund that essentially is “Double Short” the S&P 500 and is frequently used in retirement accounts or by traders/funds who are prohibited (or uncomfortable) from shorting stocks.  It can be an alternative to “Going into Cash” but being two-times leveraged, it can indeed be quite risky… or lucrative.

For example, during the S&P sell-off during October, price literally doubled from a September low of $50 to an October high of $110 (which was followed by sharp volatility afterwards).

More recently, price formed a “Cradle Trade” or “Confluence Resistance” Trade as price pulled back to test the convergence area of the 20 and 50 day EMA, forming a doji/evening star candle before falling to fresh 2009 lows.

Looking at this, we would have a rather bearish posture, given that price is in a daily confirmed downtrend and has EMA resistance (at $75) overhead which should be expected to contain price on any rally.

The S&P 500 is actually not quite as ‘bullish’ as the SDS is ‘bearish’ which is interesting (the S&P 500’s moving average structure is still bearish and price – at the time this chart was captured – was actually between the 20 and 50 day EMA, not above both of them).

It’s interesting to note non-confirmations between ETFs and the underlying Index they represent.  Continue studying this ETF along with others (SH is the 1x short S&P 500 ETF) for additional insights.

UPDATE:  A reader passed along this article from Seeking Alpha which describes the intracacies of Short and Leveraged ETFs that is certain worth studying for additional information.  Author Balaji Viswanathan lists 8 specific “Pitfalls” you need to know before trading such ETFs.

In short, the article

Corey Rosenbloom
Afraid to Trade.com