- Technical Commentary -

September 16, 2009 (FinancialWire) (By Dr. Joe Duarte) — The Short S&P 500 Shares ETF (NYSE: SH) may have a place in a well diversified portfolio over the short term.

Volatile markets make investors jittery, and rightly so. Yet, especially in portfolios that are taxable, such as non-IRA accounts, active trading can lead to a fair amount of taxable, if not accountable activity.

That means that, especially, during wild political times, investors may need a tool to protect their portfolio without selling everything and going to cash.

That’s what the Short S&P 500 Shares ETF and other ETFs that specialize in short selling can provide, a hedge without the volatility and extra work that buying options or going to cash can bring on.

Right now, SH is fairly cheap, as it broke to a new low last week, as the S&P 500 made a new high. SH moves in the exact opposite direction of the S&P 500. So by buying shares of SH, investors are shorting the market. If the S&P 500 goes up, SH shares will go down.

New investors, and those who don’t understand or fear short selling should not buy shares in SH. And although SH is not leveraged, as its moves in a one to one fashion with S&P 500, because it shorts the S&P 500, is more volatile than an ETF that buys shares that rise in price.

The bottom line is that for those who are not sure about liquidating their portfolio, owning shares in SH can protect the value of the portfolio as other shares fall in price. The flip side is that if it’s worth 10-15% of the portfolio, it won’t hurt the long side of the portfolio if the market keeps going up.  Also, using a 5% sell stop below the purchase price of SH would limit any losses.

[Go to http://www.financialwire.net/?s=joe+duarte to see more commentaries by Dr. Joe Duarte.]

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