ProShares UltraPro Short QQQ

SQQQ

Market cap $2B

ProShares UltraPro Short QQQ ETF is an ultrashort ETF with inverse leverage (-3x) on the Nasdaq-100. It is not a hedge instrument: it is not suitable for passive inclusion in a portfolio due to the inverse leverage decay effect. However, it can be used as a trading tool, but even here, decay plays negatively, especially in contrarian strategies or after a Nasdaq-100 dump.

ProShares UltraPro Short QQQ ETF remains a preferred hedge for technology-heavy portfolios amid rising market concentration and volatility. I maintain a HOLD rating on SQQQ, continuing to use both shares and options for portfolio protection despite its short-term nature. SQQQ is particularly effective for hedging against high-yield option income ETFs like GPIQ, with inverse effects amplified during volatile periods.

The artificial intelligence sector is showing critical warning signs that suggest a significant correction may be approaching. Recent market analysis reveals that AI stocks, particularly the “Magnificent Seven,” have been making lower highs since December 2024, diverging from broader market performance – a pattern that historically precedes major corrections.

AI stocks stumbled this week, short sellers won big. Inverse ETFs like SQQQ, TECS, BERZ & QID shone as investors hedged against the AI trade.

Markets are showing resilience, but subtle shifts suggest inflation risks are rising and could trigger volatility in the second half of the year. Recent labor market strength and new fiscal policies are likely to fuel inflation, with CPI expected to approach 4% by year-end. Despite inflation concerns, I see little reason to short QQQ or use SQQQ now, as the risks and timing requirements are too high.

The Direxion Daily S&P 500 Bear 3X Shares ETF (SPXS) is comparatively less risky but may offer less reward.

We have highlighted five ETFs that have seen higher average volumes over the past three months.

Despite fundamental and technical reasons to short the market, it's best not to short the ProShares UltraPro Short QQQ ETF currently. SQQQ has declined about 20% since the initial recommendation, highlighting the difficulty of timing the market correctly. The market can rise for numerous unpredictable reasons, making it risky to bet against it.

April 9th, 2024 saw a historic 12.2% Nasdaq rally, signaling potential volatility and further declines in high-flying tech stocks. The ProShares UltraShort QQQ ETF is a leveraged fund designed for short-term tactical trading, not long-term holding. Historical patterns suggest large single-day Nasdaq gains often precede further market declines, akin to the dot-com era.

The SQQQ ETF, a 3x leveraged inverse fund for the Nasdaq-100, is highly risky and not ideal for long-term hedging. Leveraged ETFs like SQQQ are designed for short-term trading and can lead to significant losses due to the decay effect. Statistically, during downturns, the largest intraday rebounds occur, thereby increasing the risk of decay.