Obviously, from recent activity,  stock indices doesn’t keep going up forever. For awhile, technical indicators (and market commentators) had been showing some warning  signs that markets were overbought and that a correction was on the way.

Finally, it became evident that our friend, the trend, was losing steam.

So, I thought I would look into what it means to take a position on an inverse ETFs. Is this a good idea if you can’t identify any long positions to take?

The answer it seems is, yes, but with the caveat that they generally only work out well in short-term trades or for major long-term corrections. In a volatile market, it’s best to avoid them.

The reason: Over time and more trading periods, the volatility compounds returns and losses on an increasing or decreasing ETF price, such that over the longer-term you can expect a disconnect between gains/losses on a regular ETF and those on the corresponding inverse ETF.

The bottom line is, inverse ETFs are designed as a short-term hedging instrument and are not suitable for long-term investments as inverse results don’t replicate over extended time periods. They only replicate on a day-to-day basis.

Here is an Inverse Equity ETF List and the following are some examples:

ProShares Short S&P 500 ETF (SH) – Inverse (-1x) of the daily performance of the S&P 500.

ProShares Short Dow30 ETF (DOG) – Inverse (-1x) of the daily performance of the Dow Jones Industrial

ProShares Short Dow30 ETF (DXD) – Two times the inverse (-2x) of the daily return of the Dow Jones Industrial Average.

Direxion Daily Small Cap Bear 3x Shares (TZA) – Three times the inverse of the Russell 2000 Index.

Direxion Daily Financial Bear 3x Shares (FAZ) -Three times of the inverse of the Russell 1000 Financial Services Index.