Is it safe to buy the UltraPro Short (SQQQ) ETF dip?

By:
on Aug 8, 2023
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  • The ProShares UltraPro Short QQQ stock has been in a strong bearish trend.
  • The highly-leveraged ETF has plunged by more than 65% from last year’s high.
  • Investing in the fund is highly risky since stocks tend to rise in the long run.

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The ProShares UltraPro Short QQQ (SQQQ) ETF has been in a strong bearish trend this year as America’s technology stocks soared. The fund has plunged by over 65% this year while the TQQQ ETF stock has jumped by over 150%. In the same period, the Nasdaq 100 index has soared by over 45%.

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Outlook for the SQQQ ETF

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The ProShares UltraPro Short QQQ ETF is a popular fund that has over $4.2 billion. It has an average daily volume of over $120 million and a dividend yield of about 3.35%. This yield is much higher than Invesco QQQ’s of less than 2%. However, the fund has an expense ratio of about 0.95%, meaning that a $100k investment attracts a fee of ~$950.

The ProShares UltraPro Short QQQ fund is designed to make money when America’s tech stocks plunge. In its case, it seeks a 3x return of the Nasdaq 100 index for a single day. This means that by compounding of daily returns, holding for longer periods can lead to uncorrelated returns.

The SQQQ ETF has underperformed the market this year because of the strong tech comeback. This rally has been driven by the so-called magnificent 7, which include names like Microsoft, Apple, Nvidia, and Tesla. Recently, other smaller tech companies have joined the rally.

Therefore, some SQQQ investors believe that stocks will likely start falling in the next few months since the rally has been stretched. There are also signs of weaknesses among major tech companies like Apple and Tesla.

QQQ ETF

However, in the long-term, investing in the fund is one of the best ways to grow broke since American stocks tend to rally in the long term. As shown above Invesco QQQ always recovered after plunging. It recovered after the dot com bubble, the Covid-19 pandemic, and the Global Financial Crisis (GFC).

ProShares UltraPro Short QQQ analysis

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Investing in the ProShares UltraPro Short QQQ ETF is highly risky since there are more catalysts ahead. For one, using the trend-following strategy, there is a likelihood that stocks will continue rising in the coming months.

Further, fears of a recession have waned as evidenced by the recent American economic data. As we wrote on Friday, the unemployment rate dropped to 3.5% as the economy added over 187k. 

There are also signs that the Federal Reserve is nearing the end of the hiking cycle. Some Fed officials have warned that another hike will come in September. If that happens, it will be the final increase of this cycle.

Turning to the daily chart, we see that the SQQQ stock price has been in a strong bearish trend in the past few months. It recently crossed the key support levels at $32.34 and $27.61, the lowest points in August 2022 and November 2021.

The ProShares UltraPro Short QQQ fund has remained below all moving averages. The MACD and the Relative Strength Index (RSI) has drifted upwards. Therefore, the shares will likely continue falling as sellers target the next level to watch will be at $15. 

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