DataTrader: UltraShort S&P Earns Top Ratings Among Leveraged ETFs

Earning a one-point upgrade from 9 to 10 out of 10 puts the ProShares UltraShort S&P 500 ETF (SDS) near the top of our list in terms of leveraged ETFs that have pulled back to levels from which they have historically made significant short term gains.

The last time SDS was this highly rated was in the middle of September, shortly before the ETF soared more than 8% in three days and 14% in five days. Before that, similarly high ratings at the end of August helped the SDS gain more than 6% in three days. SDS was higher by more than 9% seven days later.

Past performance is no guarantee of future results. But the performance of SDS as it has been upgraded in recent weeks is consistent with the historical data: in the short term, exchange-traded funds earning ratings of 8, 9 or 10 have tended to make significant short term gains.

Trading leveraged ETFs is not for everyone. ETFs like SDS are built to return twice the average daily return of the S&P 500, which means that moves to the upside and downside will likely have a sharper effect on your portfolio than would a regular, non-leveraged ETF. This is even moreso for those ETFs that are triple-leveraged, moving 3 to 1 versus the underlying.

But for disciplined traders, leveraged ETFs – and inverse leveraged ETFs like the ProShares Ultrashort S&P 500 ETF – can provide traders with vital short-term exposure in the event that markets move lower. Inverse ETFs like SDS also provide this without the trader or investor having to borrow shares in order to sell short.

SDS is one of the more liquid inverse leveraged ETFs and is a popular tool for both short term trading and short term hedging. If exposure to the downside is what your portfolio needs in the near-term, then exchange-traded funds like SDS may be worth a look, especially as their ratings increase.

Quantified data and research on ETFs like the ProShares UltraShort S&P 500 ETF is available each evening after the market close. To learn more, click here.

David Penn is Editor in Chief of