SPDN: An Inexpensive Way To Profit When The S&P 500 Falls

Summary
SPDN is not the largest or oldest way to short the S&P 500, but it’s a solid choice.
This ETF uses a variety of financial instruments to target a return opposite that of the S&P 500 Index.
SPDN’s 0.49% Expense Ratio is nearly half that of the larger, longer-tenured -1x Inverse S&P 500 ETF.
Details aside, the potential continuation of the equity bear market makes single-inverse ETFs an investment segment investor should be familiar with.
We rate SPDN a Strong Buy because we believe the risks of a continued bear market greatly outweigh the possibility of a quick return to a bull market.
Put a gear stick into R position, (Reverse).
Birdlkportfolio

By Rob Isbitts

Summary
The S&P 500 is in a bear market, and we don’t see a quick-fix. Many investors assume the only way to navigate a potentially long-term bear market is to hide in cash, day-trade or “just hang in there” while the bear takes their retirement nest egg.

The Direxion Daily S&P 500® Bear 1X ETF (NYSEARCA:SPDN) is one of a class of single-inverse ETFs that allow investors to profit from down moves in the stock market.

SPDN is an unleveraged, liquid, low-cost way to either try to hedge an equity portfolio, profit from a decline in the S&P 500, or both. We rate it a Strong Buy, given our concern about the intermediate-term outlook for the global equity market.

Strategy
SPDN keeps it simple. If the S&P 500 goes up by X%, it should go down by X%. The opposite is also expected.

Proprietary ETF Grades
Offense/Defense: Defense

Segment: Inverse Equity

Sub-Segment: Inverse S&P 500

Correlation (vs. S&P 500): Very High (inverse)

Expected Volatility (vs. S&P 500): Similar (but opposite)

Holding Analysis
SPDN does not rely on shorting individual stocks in the S&P 500. Instead, the managers typically use a combination of futures, swaps and other derivative instruments to create a portfolio that consistently aims to deliver the opposite of what the S&P 500 does.

Strengths
SPDN is a fairly “no-frills” way to do what many investors probably wished they could do during the first 9 months of 2022 and in past bear markets: find something that goes up when the “market” goes down. After all, bonds are not the answer they used to be, commodities like gold have, shall we say, lost their luster. And moving to cash creates the issue of making two correct timing decisions, when to get in and when to get out. SPDN and its single-inverse ETF brethren offer a liquid tool to use in a variety of ways, depending on what a particular investor wants to achieve.

Weaknesses
The weakness of any inverse ETF is that it does the opposite of what the market does, when the market goes up. So, even in bear markets when the broader market trend is down, sharp bear market rallies (or any rallies for that matter) in the S&P 500 will cause SPDN to drop as much as the market goes up.

Opportunities
While inverse ETFs have a reputation in some circles as nothing more than day-trading vehicles, our own experience with them is, pardon the pun, exactly the opposite! We encourage investors to try to better-understand single inverse ETFs like SPDN. While traders tend to gravitate to leveraged inverse ETFs (which actually are day-trading tools), we believe that in an extended bear market, SPDN and its ilk could be a game-saver for many portfolios.

Threats
SPDN and most other single inverse ETFs are vulnerable to a sustained rise in the price of the index it aims to deliver the inverse of. But that threat of loss in a rising market means that when an investor considers SPDN, they should also have a game plan for how and when they will deploy this unique portfolio weapon.

Proprietary Technical Ratings
Short-Term Rating (next 3 months): Strong Buy

Long-Term Rating (next 12 months): Buy

Conclusions
ETF Quality Opinion
SPDN does what it aims to do, and has done so for over 6 years now. For a while, it was largely-ignored, given the existence of a similar ETF that has been around much longer. But the more tenured SPDN has become, the more attractive it looks as an alternative.

ETF Investment Opinion

SPDN is rated Strong Buy because the S&P 500 continues to look as vulnerable to further decline. And, while the market bottomed in mid-June, rallied, then waffled since that time, our proprietary macro market indicators all point to much greater risk of a major decline from this level than a fast return to bull market glory. Thus, SPDN is at best a way to exploit and attack the bear, and at worst a hedge on an otherwise equity-laden portfolio.

US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%

US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 1.14%. While S&P 500 was trading at 3,701.66, up by 0.98% and Nasdaq Composite 10,690.60 was also up by 0.71 per cent

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US Markets in green on Friday; Dow 30 up over 345 points, Nasdaq Composite, S&P 500 up nearly 1%
Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. Source: Reuters
US Markets were trading in the green on Friday with Dow 30 trading at 30,678.80, up by 345.25 points or1.14 per cent. While S&P 500 was trading at 3,701.66, up by 35.88 points or 0.98 per cent and Nasdaq Composite 10,690.60 was also up 75.75 points or 0.71 per cent. A Reuters report said that today’s strength was on the back of a report which said the Federal Reserve will likely debate on signaling plans for a smaller interest rate hike in December, reversing declines set off by social media firms after Snap Inc’s ad warning.

Source: Comex

Nasdaq Top Gainers and Losers

Source: Nasdaq

Earlier today, Indian stock markets ended the week on a winning note. It was the sixth straight gains for equity markets. The BSE Sensex ended at 59,307.15, up by 104.25 points or 0.18 per cent from the Thursday closing level. Meanwhile, the Nifty50 index closed at 17,590.00, higher by 26.05 points or 0.15 per cent. In the 30-share Sensex, 13 stocks gained while the remaining 17 ended on the losing side. In the 50-stock Nifty50, 21 stocks advanced while 29 declined.

Credit Scores – How Do They Work?

Credit scoring is a complicated process and each of the 3 major credit
repositories have their own credit scoring models in place to determine a
borrower’s credit score. The 3 main credit repositories are Equifax, Experian,
and TransUnion. Equifax has credit scores that range from a lowest possible
score of 300 and a highest possible score of 850. Experian has a range of
340-820 and TransUnion 150-934. Just like computers have upgraded operating
systems over the years such as, Windows 98, Windows 2000, and Windows XP, the
credit scoring system versions update periodically also. Not all lenders use the
same version or the most updated version when obtaining a credit report and
credit score for a borrower. Therefore, this is one reason why you may have
varying credit scores between one lender and another.There are five major components or factors that help to determine your credit
score. Roughly 35 percent of your credit score is derived from your payment
history, 30 percent from how much you owe compared to how much you have
available, 15 percent comes from length of credit history, 10 percent from new
credit and recent inquiries, and the final 10 percent comes from various other
items such as the mixture of credit you currently have. Next we will discuss
each of the five components in further detail and explain the basic principals
as to how credit scoring works. This information is to be used only to help
educate and as a guide to assist with the basic ideas involved in credit
scoring.Payment History (35%)Your payment history is the most important factor of credit scoring.
Bankruptcies, collection accounts, slow pays and late payments, foreclosures,
judgments, and liens can negatively affect your credit score. However, an
established history of on-time payments and a clean credit history will
positively impact your credit scores and help to increase them over time. The
older any negative credit history or adverse credit factors are, the less they
will negatively affect your credit score. Therefore, recent late payments or
other derogatory credit will negatively affect your credit much greater than
aged bad credit.Revolving Credit Balances to Maximum Limits (30%)The second biggest factor in credit scoring comes from how you utilize your
revolving credit. The credit scoring models are going to look heavily upon how
much revolving credit you have available compared to how much you have used. For
credit scoring purposes, having all revolving credit or credit card accounts
maxed out to their limits is not a good thing, nor is it going to help better
your credit scores. You don’t want to pay off all of your revolving credit
accounts because that will not show the credit bureaus how well you manage your
credit. Your ideal credit ratios should be roughly 20-40 percent usage. What
this means is that if you have a credit card with a $1000 limit you do not want
to max. out the credit card balance, but you would want to maintain a balance
between 200 and 400 dollars. If you do realize that you have borrowed more than
50% of your available credit limit on your card or your balance is getting close
to your limit, you should either try to pay your balance down to the 40% mark or
call your credit card company and see if they are able to raise your limit. The
biggest mistake you can make is to let your balance exceed your maximum credit
limit. This will negatively affect your credit score a great amount.Length of Credit History (15%)The longer and more established your credit history is, the better and more
positive of an impact it can make. Someone who pays their bills on time for a 10
year period of time is a much better risk than someone who only has a 1 year
history of paying their bills on time, even if they both carry the same credit
score. When you pay off credit card accounts do not close them, keep them open
and use them periodically in order to continue to build an established length of
credit. Closing your accounts can actually have more of a negative affect on
your credit score due to limiting the length of time that particular account was
open for. The longer you have established credit accounts, the better it is for
you. It is possible to still have a good credit score with a short credit
history; however lenders may not approve you for optimal financing options due
to the lack of history still.New Credit and Inquiries (10%)The amount of new credit you have opened, will have somewhat of a minor impact
on your credit scores. If you have numerous inquiries resulting from applying
for a lot of new credit and add many new trade-lines in your credit report, this
can have a damaging effect on your credit score. First, it may negatively affect
your scores because you have a lot of new, un-established accounts. Second, it
can negatively impact your score because you have a lot of inquiries with
various lenders for various types of financing over a short period of time.
Credit inquiries can affect your credit score, not a ton, but enough to lower
your score. This is not to say don’t shop around or don’t have more than one
firm pull your credit when looking to buy a car or a home. You definitely should
use due diligence and shop between a couple of lenders to make sure you are
getting a good deal. When you are comparing quotes however, you should try to do
all of your shopping within a 30 day max. period of time. All inquiries that are
made when applying for an auto loan or a mortgage loan are treated as only one
inquiry when they are done within a 14 day period of time. Therefore if you are
ever told to not have anyone else pull your credit or else your scores will
lower, this has little truth to it. There is only one type of credit inquiry
that counts toward your credit score. That one type of inquiry is when you are
making an application for credit: such as a home loan, auto loan, credit card,
etc… When you pull your own credit, a creditor you already have an account with
pulls your credit, and/or a prospective employer pulls your credit, these do not
have any impact on your scores. Understanding this can help you make sure that
you do not fall victim to all of the urban myths regarding credit inquiries.Types & Mixture of Credit (10%)Having a mixture of the various types of credit will have a small impact on your
credit scores. For a person who has a good mixture of credit such as a home
loan, auto loan, 2-4 credit cards and maybe a personal loan this could be deemed
a good mixture of credit versus a different person who has 15 credit cards and
no other credit. The ideal number of credit cards to maintain is 2-4. Also,
other types of liabilities are important to have, such as installment loans and
a mortgage loan.”Knowledge is power” and the most important step to applying for a loan is to
understand your credit report, your credit scores and how credit scoring works.
It is highly recommended that every person checks their credit report at least
once per year to help protect themselves from inaccurate information and from
identity theft. A new law was recently passed that permits a borrower to have
access to their credit report one time each year for no charge to allow them the
opportunity to review their credit history and verify the accuracy of all items
listed. You are permitted to obtain a credit report from each of the three
credit repositories, TransUnion, Equifax, and Experian. You can obtain your
free report by logging into the annual credit report and following
the directions. When you obtain your free report it will not contain your credit
score, but you can pay a small fee if you would like to find out what your score
is when you are ordering your free report. It is also highly recommended that
you pull a report from each repository individually as opposed to all of them
together so that you can dispute any erroneous information to each bureau
separately. If you report a problem to only one of the bureaus it will not be
fixed among all three of the bureaus. Remember the bureaus are separate of each
other and have no communication amongst each other either. Some creditors report
to only 1 bureau, some report to 2 bureaus, some report to all three bureaus and
some don’t report to any. This is why you must make sure that you check all
three credit repositories when you are utilizing your free annual credit report.
In conclusion, your credit is very important and understanding the basics of how
your credit scores are obtained is equally as important.Credit scoring is a complicated process and each of the 3 major credit
repositories have their own credit scoring models in place to determine a
borrower’s credit score. The 3 main credit repositories are Equifax, Experian,
and TransUnion. Equifax has credit scores that range from a lowest possible
score of 300 and aHere is a quick contact list for the 3 main credit repositories:Equifax Credit Bureau P.O. Box 740241 Atlanta GA 30374-0241 * (800) 685-1111http://www.equifax.comExperian (Formerly TRW Credit Bureau) P.O. Box 949 Allen TX 75013-0949 * (888)
397-3742http://www.experian.comTrans Union Corporation (Credit Bureau) Consumer Disclosure Center P.O. Box 390
Springfield PA 19064-0390 * (800) 916-8800 * (800) 682-7654 * (714) 680-7292http://www.transunion.com