Is The Market Surge A Buying Opportunity Of Bear Market ETFs? (FAZ, TZA)

Sophisticated investors interested in hedging their long only positions should keep their eyes on exchange traded funds the move downward while the rest of the market charges ahead.  I am definitely all for better credit markets for small businesses and a reversal of near double digit unemployment numbers, but until these events transpire let’s take a look at a couple of Bear Market ETFs that become cheaper as the market surges upward.

  • Direxion Daily Financial Bear 3X Shares (NYSE:FAZ) Visit Our (FAZ) Category: HERE
  • Direxion Daily Real Estate Bear 3x Shares (NYSE:DRV) Visit Our (DRV) Category: HERE
  • Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA)  Visit Our (TZA) Category: HERE

Bull_Bear_ETF_080210

Bull_Bear_ETF_042010

The take away from the graphs above is that investors have increased their investment in the Direxion Daily Financial Bear 3X Shares (NYSE:FAZ) and Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA) funds over the past 4 months.

Culprits of the Dow’s Rise

Corporate results in the US and from European Banks including BNP Paribus SA and HSBC may be contributing to the summer rally of the Dow Jones Industrial average.  I’m not convinced that the market will continue to climb unabated given major outstanding issues including:

  • An Unemployment Rate of 9.5% as of June 2010 (US Bureau Labor of Statistics (BLS.Gov))
  • Ben Bernanke, the Federal Reserve Chairman’s comments on the economy, “the US still has a long way to go to achieve a full recovery as many Americans are dealing with unemployment, foreclosure and lost savings.”

FederalReserve.gov, Aug 2 Speech

  • Tight credit markets particularly for small business owners
  • Fear surrounding what’s on the other side of the 0% environment implemented by the Fed

To avoid sending the message of gloom and doom Ben Bernanke also pointed out several signals of progress concerning the US economy since the modest recovery began in the middle of last year.

Positive Events

  • Restocking of inventories
  • Rising demand from households
  • The potential growth in real estate (Note: Interest rates on 30-Year mortgages are near all-time lows below 5%)
  • Business has increased investment in software and equipment

Conclusion

I believe there is a buying opportunity of the Bear Market ETFs, especially on days where the DJIA rises over 200 points in one day while the factors creating a headwind for the economy have not changed course.

Written By Gregory S. Davis From ETF Ready

Disclosure:  At the time of publication the author, Gregory S. Davis, does not own shares in any of the ETFs mentioned.

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