Preparing To Bet Against Nasdaq With The PSQ ETF

seekingalpha09-07

JHVEPhoto Investment thesis: Now that the much-awaited rate cuts have been confirmed to be in the pipeline, the implications for the markets are becoming increasingly obvious. A full trading week and ...

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A full trading week and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4719573-preparing-to-bet-against-nasdaq-with-the-psq-etf\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Preparing To Bet Against Nasdaq With The PSQ ETF</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPreparing To Bet Against Nasdaq With The PSQ ETF\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-07 00:48 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4719573-preparing-to-bet-against-nasdaq-with-the-psq-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>JHVEPhoto Investment thesis: Now that the much-awaited rate cuts have been confirmed to be in the pipeline, the implications for the markets are becoming increasingly obvious. A full trading week and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4719573-preparing-to-bet-against-nasdaq-with-the-psq-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AAPL","symbol_name":"苹果","start_time":0,"source_url":"https://seekingalpha.com/article/4719573-preparing-to-bet-against-nasdaq-with-the-psq-etf","article_id":"2465105026","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1615363744/image_1615363744.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2465105026","pubTimestamp":1725641301,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"JHVEPhoto Investment thesis: Now that the much-awaited rate cuts have been confirmed to be in the pipeline, the implications for the markets are becoming increasingly obvious. 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A full trading week and we are into the second one since the Jackson Hole meeting where Federal Reserve Chair Jerome Powell announced his intention to start cutting rates and the market is largely flat. It exposes that the rate cuts and any other positive catalysts, real or assumed, are priced into the market. With seemingly little upside potential while downside risks are plentiful, the ProShares Short QQQ ETF (NYSEARCA:PSQ) trades inversely to the Nasdaq composite and is a good candidate for investors to bet against the market. The Nasdaq is currently trading at a significant P/E ratio premium relative to the rest of the market which makes it a prime candidate to see a significant downside, within the context of a broad stock market selloff that may be on the horizon. At this point, I am looking for the Nasdaq composite index to take a run at the all-time highs set in the summer before I purchase shares in the inverse ETF. About the PSQ ETF About half of the weight of the PSQ fund is comprised of information tech companies. A further 15% is made up of communication services. ProShares The fund's expense ratio is 0.95%, making it pricier than the SPDN ETF (SPDN) I recently covered, which has an expense ratio of 0.58%. The PSQ ETF also pays an estimated forward dividend of over 7%, which more than covers the expense involved, as well as potentially reducing the potential risk of loss, if the trade does not work out. PSQ stock price and other metrics (Seeking Alpha) Just so one can get a sense of what a long-term buy & hold position looks like in this ETF under normal market circumstances, I provided the 10-year share price chart as a reference. Timing is crucial to making this a bet that pays. As the chart shows, there is little room for error. If the investment thesis does not work out in a matter of months, investors stand to lose money, and the sooner one takes the loss the less severe the damage. The ETF covers 102 companies, with an average P/E ratio of about 35, which is slightly lower than the current P/E ratio of the NASDAQ composite. The 10-year average P/E ratio for the Nasdaq has been 29. NASDAQ P/E ratio and other metrics (Full ratio) The Nasdaq composite currently trades at a P/E ratio of about 41. The discrepancy in the P/E ratio of the ETF versus the Nasdaq index is a significant detail because there is a potential for the inverse ETF to not provide a 100% proportional inverse outcome. Hypothetically, the PSQ ETF may provide slightly less upside than the proportional downturn of the Nasdaq index, given that the components are not as overpriced on average as the overall index. Big picture factors relevant to the tech sector The tech boom outcome scenario is partially tied to AI growth expectations. Aside from ongoing expectations that the market has been patiently waiting for, namely for interest rates to be lowered, one of the main reasons why the Nasdaq composite is trading at such high valuation levels is because the AI trend is seen as a significant catalyst for tech growth. AI market size (Statista) The magnitude of the AI market's potential growth may not capture its secondary effect as a broad driver of future tech sales growth for new hardware, as well as services, generated or enhanced by AI. There is no telling how it will shape the consumer & business market for technology. There is some pessimism about AI monetization, where companies are investing in AI capacities, even as there is no clear path to monetizing those capacities. My take on the AI issue is that it is a source of great uncertainty because there is no way to predict the outcome. There may be many unforeseen difficulties in monetizing it, therefore at some point, it may lead to a bubble bursting, similar to the dot.com collapse at the beginning of the century. Or, it may lead to innovative transformations in the way business is conducted, in ways that we are yet to envision, which can lead to a tech boom and also a new great global economic boom. Perhaps one of the greatest impediments to the AI trend becoming a transformational success story for the global economy is the risk that it becomes a tool of confirmation bias, thus contributing very little to innovation. For instance, Google's AI experiment confirmed that the current perceptions of Google's and society's ideological trends ended up being mirrored back at the user, based on the input of the creators of the AI tool. Beyond this obvious example, there is the risk that AI analysis of any subject will end up being just more of the same, including efforts to produce AI-generated financial analysis, software development, technical solutions, targeted marketing, and other applications. In the absence of the industry being able to overcome this problem, there is the risk that AI use will be very limited in terms of usefulness and not particularly valuable to the end-consumer of the content or service. If this turns out to be the case, we may see early signs of investment in AI slowing down. Global tech split might be a significant risk factor. At the turn of the century, the US & close allies had a collective near-monopoly on high-tech. Tech manufacturing and services migrated to places like China & India. These emerging economic powers were nowhere near the technological level needed to start challenging the established tech ecosystem of the Western World. Most of the technologies they developed this century were highly dependent on inputs sourced from Western companies. That all changed with the China-2025 plan, meant to lift China out of its manufacturing role and bring it into the league of technological leaders. The initiative was launched a decade ago and can be considered the triggering event for the current tech war that threatens to split the world into two or more separate technological camps. As things stand, efforts to curb China's technological rise seem to have mostly failed. Huawei, the company that was most feared and sanctioned, is seemingly coming back stronger, with mostly domestic Chinese inputs driving its new products that seem to be performant to the extent that they can be considered to be adequate alternatives to US & allied tech products. Companies like Apple (AAPL) are already being negatively impacted with sales in China plunging due to Huawei's competing products entering the market. It may be an early symptom of the negative impact that this can have on most Western-based tech companies, where they will increasingly find themselves outcompeted in markets around the world. A sluggish global economy is bad for tech Aside from the pressing question that investors need to ask, whether an AI technological innovation has the potential to be transformative or not, there is the issue of a slowing global economy, which puts into question whether technological progress can be supported through market adoption of new technologies. The growth/innovation correlation can be presented as a classical chicken or egg dilemma. It is thought that technological innovation can drive economic growth. The problem is that if there is already a slow economy, technological innovation may have a hard time being monetized and employed, especially at the business level, where a lack of economic growth can lead to spending cutbacks, which tend to impede the dissemination of new technologies. The global economy faces many challenges, ranging from consumer demand issues to economic, geopolitical, and arguably internal political frictions that can all play a detrimental role in economic growth. As I pointed out many times in previous articles, there is also a chance that The impending rate cuts should not necessarily be seen as an immediate economic booster. Companies & consumers alike may choose to use any interest rate relief to shore up their finances after taking on significant debt rather than boost spending. Some data points, such as job openings point to an already slowing economy. There are also other potential economic headwinds, such as a possible shortfall in global oil supplies that OPEC's data & forecast seems to be pointing at. It believes that we were already in a 1.5 mb/d shortfall situation in the second quarter of the year, and it sees robust demand growth in coming months. It should be noted that the IEA does not share OPEC's view. It sees plentiful supplies and weak demand. The market currently acts in agreement with the IEA, but that could change if OPEC turns out to be correct. If OPEC turns out to be correct, we are probably looking at an imminent recession, as soon as the market catches on and an oil price spike occurs. Investment implications: Risk of missing out. As I pointed out in a recent article, I recently started a position in the SPDN ETF (SPDN), which provides investors with an inverse share price movement to the S&P 500. I am holding off on PSQ because I believe there might still be a significant leg up for the tech-heavy Nasdaq index. Slickcharts.com The top holdings of the index tend to be on the must-own lists of most investors, so any pullbacks in these stocks will be followed by buyers coming in, which can create upward momentum for some months to come. Having said that, there is always a risk that the market will not follow this pattern and instead, downward momentum will build on itself, and a great re-balancing of the Index's P/E back to more reasonable levels will take place. After all, the current P/E ratio in the 41 range is significantly higher than it was during most years of the near-zero interest rate period post-2009. It is difficult therefore to make a rational argument in favor of the index trading at current valuation levels. The markets tend to stray from being rational from time to time and then collectively investors move back toward a more rational position, which is usually triggered by a reality check event. The risk to my current hold position is that the market might move back toward the rationality earlier than expected. Risks associated with investing in leveraged ETFs. As I already covered in detail, leveraged & inverse ETFs such as this one are most likely destined to steadily lose share value as time goes on. The U.S. Securities & Exchange Commission provides a great explanation for investors, detailing the risks associated with holding such ETF shares in one's portfolio for any timeframe longer than a day. I encourage everyone to take a minute and read the paragraph that explains the risk. It should perhaps help to illustrate why I am not opting for an inverse & leveraged ETF simultaneously. Fidelity has a very detailed explanation of the benefits/risks associated specifically with leveraged ETFs. The combined features would make the imperative of getting the timing factor right too prominent for my liking. Waiting for a move back toward all-time highs.  Though there is a potential risk of missing out on betting against what is arguably a heavily overbought market, I intend to wait it out for the Nasdaq index to move back toward its all-time high set in the summer, about 1,200 points above current levels. I probably will not wait for the all-time high to be surpassed, but get within a few percentage points of it. At that point, I intend to build a modest position in the PSQ ETF, keeping in mind the risk/reward implications. A well-timed trade might bring short-term returns in the 20%-30% range, depending on how significant a selloff will be. If the selloff does not occur in a timely manner, time will not be on the side of the investor on this one. The sooner one cuts losses, the less severe the damage will be to one's investment. Timing is of the essence with this particular inverse ETF, and the risk of missing out does not outweigh the risk of timing it wrong, and therefore I intend to wait it out just a little longer.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2465105026"}