As the S&P 500 continues to head downward, volatility is heading up. As bearishness continues to push the S&P 500 down, bulls are hopeful that a rally will ensue at some point, but in the meantime, choppiness opens opportunities for both sides.
Tuesday’s trading session, for example, saw the S&P 500 erase the early losses to finish the day in the green. Rampant inflation and the expectation of a 50-basis point interest rate hike affected major stock market indexes early before rallying back.
“For the first time in several days, sellers appear exhausted, and shorts are a bit nervous than longs (there aren’t many people who feel ‘the’ bottom is in, but even bears are anxious about a sharp rebound rally),” Adam Crisafulli of Vital Knowledge said in a note to clients, according to a CNBC report.
2 Ways to Play
Nonetheless, while the recent rally may paint a glimmer of hope for the bulls, the fact remains that market fear is still prevailing. Inverting yield curves are forecasting a potential recession, supporting the opportunity to go short on the S&P 500.
If that’s the case, then traders can look to the Direxion Daily S&P 500 Bear 3X ETF (SPXS ). SPXS seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.
“We think the data continues to paint a picture of extreme fear and a contrarian opportunity for longer-term investors, even though there is scope for further movement/more downside in the very near term on some gauges,” RBC strategist Lori Calvasina said in a note to clients.
On the flip side, should the S&P 500 rise, traders can play to the upside with the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL ). Both ETFs offer thrice the leverage, so only seasoned traders should use these products.
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