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Markets Bleeding in May: How to Short With ETFs

Sanghamitra Saha

The old adage “Sell in May” is holding good this year after President Trump announced his plans to raise tariffs on Chinese imports. Since the beginning of this year, likely reconciliation in the year-long U.S.-China trade tensions has been the talking point, which, in fact triggered a substantial global market rally.

But ahead of the final trade talks, Trump said in a Sunday afternoon Twitter post that the current 10% tariffs on $200 billion worth of Chinese goods will jump to 25% on Friday. Moreover, Trump also said that he will impose 25% levies on an extra $325 billion of Chinese goods “shortly,” per CNBC.            

Later, U.S. Trade Representative Robert Lighthizer also cited “an erosion in commitments by China” in recent negotiations and reaffirmed tariff plans announced by President Donald Trump. A group of market watchers believe that Trump’s decision to more than double the tariff rate on $200 billion of goods was intended to warn China not to start negotiations with more “empty offers,” per CNBC (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).

Since market watchers have already priced in a prospective trade deal to a large extent, this sudden emergence of uncertainty has every reason to send the markets into a tailspin. Volatility ETN iPath S&P 500 VIX ST Futures ETN VXX gained 16.5% on May 7. Needless to say, the broader market was in the red, responding to the news.

The Dow Jones Industrial Average — one of the most susceptible zones to the trade tensions — lost about 1.8% on May 7. The index had its worst performance since Jan 3. The other two top key equity indexes of U.S. stocks, the S&P 500 and the Nasdaq, logged their steepest declines since Mar 22 (read: Beat Renewed Trade Tensions With These ETFs).

How to Profit

Given the upheaval, investors could easily tap the opportunity by going short on global equities at least for the near term. Below we highlight a few of them.

Dow Jones

Investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 (DOG) (up 1.8% on May 7), ProShares UltraShort Dow30 (DXD(up 3.5% on May 7) and ProShares UltraPro Short Dow30 (SDOW) (up 5.4% on May 7).

China

Obviously, things will be unsteady in China too given the trade tension. Some of the China-related inverse plays are Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD(up 3.4%), Direxion Daily China 3x Bear Shares (YANG(up 8.0%), ProShares UltraShort China 50 (FXP) (up 5.3%) and ProShares Short FTSE China 50 (YXI) (up 2.9%).

S&P 500

Investors can go against the S&P 500 with ProShares Short S&P500 ETF (SH) (up 1.6% on May 7) and Direxion Daily S&P 500 Bear 1X Shares SPDN (up 1.7% on May 7). 

Nasdaq

ProShares Short QQQ PSQ (up 2.0% on May 7), ProShares UltraShort QQQ (QID(up 4% on May 7) and ProShares UltraPro Short QQQ SQQQ (up 5.9% on May 7) are good to play against Nasdaq.

Small-Cap

One can short small-cap U.S. equities with ProShares Short Russell2000 (RWM) (up 2% on May 7).

EAFE

ProShares Short MSCI EAFE (EFZ) (up 1.9% on May 7) could be a good way to short stocks from the EAFE region and avoid the spillover effect of the global trade fear.

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ProShares UltraPro Short Dow30 (SDOW): ETF Research Reports
 
Proshares Short Dow30 (DOG): ETF Research Reports
 
Direxion Daily S&P 500 Bear 1X Shares (SPDN): ETF Research Reports
 
Proshares Short QQQ (PSQ): ETF Research Reports
 
ProShares Short S&P500 (SH): ETF Research Reports
 
ProShares Short MSCI EAFE (EFZ): ETF Research Reports
 
ProShares UltraPro Short QQQ (SQQQ): ETF Research Reports
 
iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): ETF Research Reports
 
Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD): ETF Research Reports
 
ProShares Short FTSE China 50 (YXI): ETF Research Reports
 
ProShares UltraShort QQQ (QID): ETF Research Reports
 
ProShares UltraShort FTSE China 50 (FXP): ETF Research Reports
 
Direxion Daily FTSE China Bear 3X Shares (YANG): ETF Research Reports
 
ProShares UltraShort Dow30 (DXD): ETF Research Reports
 
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