We initially really useful shopping for ProShares Extremely S&P500 ETF, SSO on November twenty sixth of final 12 months, close to the underside of the bear market. Then, on March 14th, we bolstered this suggestion by suggesting buyers maintain their leveraged place however not add to it. The funding has gained 33% versus 19% for the S&P 500.
Nonetheless, latest record-high money flows into SSO are making us nervous as this usually happens close to a value peak. We due to this fact suppose it prudent to cut back leverage by promoting SSO and buying SPY as a substitute. Basically, since we nonetheless suppose the market has increased to go, we merely wish to cut back leverage and danger.
File Money Flows Into SSO Make Us Nervous About Leverage
We regularly use investor exercise in ProShares leveraged funds, particularly the brief funds, as indicators of what the market, and the ProShares funds, are going to do. In different phrases, investor exercise within the ProShares fund household makes nice market indicators.
The chart beneath exhibits the money move into SSO. Our money move metric measures the online sum of money going into the fund minus what’s popping out divided by whole fund property. It will possibly due to this fact be a constructive or damaging quantity.
We measure this move over a 40-day buying and selling interval. This helps remove short-term fluctuations and offers a long-term perspective,
Over the past 40 days, the online money move has been constructive at a median day by day price of .42% of property. As you may see, that is the most important money move into the fund since 2016. It is a report constructive move from the most important damaging move recorded final October.
We have indicated with arrows earlier peaks in money move and most, however not all, occurred close to intermediate-term value peak in SSO. We predict the present report quantity warrants investor warning within the type of a discount in leverage.
Low Shopping for ranges In SSO Additionally Recommend Warning
Within the chart beneath, the purple line graphs the common day by day shopping for in SSO as a % of property over the past twenty days. Historical past exhibits that purchasing peaks close to value lows in SSO and falls to low ranges at value highs. The arrows level to this reality.
Each day shopping for in SSO as a % of property has fallen beneath 5% and is close to report lows. That is proven by the small, black circle on the decrease proper of the chart. This implies warning for additional value advance in SSO
That is one other investor metric of SSO that implies the fund may be reaching an intermediate-term value peak. In different phrases, this metric confirms the conclusion of the earlier chart on money move.
The Authentic November 2022 Purchase Sign
On the backside of the bear market 13 months in the past, we gave a long-term purchase sign in SSO. On the time we thought market situations warranted the elevated dangers and alternatives that SSO offers and stated the next:
We view SSO as a long-term purchase so long as buyers are in a position to withstand the massive, day by day, value fluctuations. We at the moment suppose it is a purchase as a result of we view all the market as a long run purchase because of the excessive ranges of bearish pessimism this bear market has generated by way of the summer time in nearly each sentiment indicator. We have detailed this and the idea behind it since June within the following articles: (right here), (right here), (right here), (right here), (right here), (right here) and (right here).
Over the succeeding months that sturdy purchase sign has slowly pale and we now suppose, due to the present degree of investor exercise in SSO, it is time to promote SSO and take a revenue.
Nonetheless, we don’t consider the market has reached a closing peak and we due to this fact advocate changing SSO with an equal quantity of the non-leveraged S&P 500 spider SPY. In impact we stay bullish, we simply wish to cut back leverage.
Threat Warning
There are distinctive dangers that include investing in SSO not present in most different ETFs. There’s a fixed downward value erosion that will increase the longer one holds the fund. This comes from what is known as “carrying prices” because of the reality the ETF should use some type of margin or leverage. Each the ProShares web site and the SEC have detailed messages on the inherent dangers of utilizing leveraged ETFs.