Feeling Bearish? Try a Short Index ETF on for Size (SH)

After the stunning rally in March, many market experts think the summer doldrums have set in and stocks may languish for the next couple of months. Second-quarter earnings may not be much help while charts for the Dow Jones Industrial Average and the S&P 500 are showing the infamous head-and-shoulders pattern. This is normally a sign that a pullback is in the offing.

With this confluence of factors, a near-term bearish bet on the broader market could pay off. ProShares Short S&P 500 ETF (SH) is one way to do it. ProShares is widely known for its large selection of leveraged ETFs. We recently mentioned their 3x offering, but SH is not leveraged. It aims for 1x the inverse daily performance of the S&P 500, making it a fine option for investors who want to profit from a downturn without taking on the risk of directly shorting stocks or buying leveraged short ETFs.

Remember the basic of short selling individual stocks: the potential for loss is unlimited. When buying put options, time decay can be a big problem. That’s why an ETF like SH can be an ideal way to profit from bearish trends. The expense ratio for SH is currently 0.95%, which is toward the bottom end of short ETFs and well below that of its leveraged peers. Recently, SH had assets of more than $1 billion.

The S&P 500 index has now closed below the critical 900 for several consecutive days and rests below both its 50-day and 200-day moving averages. The point-and-figure charts are even gloomier, indicating that 825 could be the next low point for the benchmark of large-cap U.S. stocks. Worse, volume is waning as summer drags on. That usually means more fertile ground for sellers as buyers are on the sidelines.

Every investor can benefit from a little insurance for their long positions. That’s just what ProShares Short S&P 500 is. Consider it an insurance policy that can deliver rosy returns when the market is falling. To profit from a falling market, go with SH.