Yesterday I tweeted out that I was starting to scale into a short position in CURE (3x long S&P Healthcare Sector ETF) and with the markets poised to gap back down below the wedges at the open today, the intermediate & possibly longer-term bearish outlook for the US equity markets remains intact for now. As such, I’ve decided to add CURE as an Active Short Trade at the open today.
My reasoning behind shorting the 3x long leveraged version of XLV (1x S&P Healthcare Sector ETF) is the same as my reasoning for the recent ERX (3x Energy Bull ETF) short trade: My primary expectation is to profit from a drop in the healthcare sector that, although could be a relatively quick drop to my price target, this trade also has the potential to morph into a multi-month swing trade. Therefore, shorting a leveraged ETF not only provides the potential to profit on correction in the health care sector but also has the added benefit of allowing the price decay suffered by leveraged ETF to work for you vs. against you, as is almost always the case when being long any leveraged ETF (bullish or bearish) over any extended period of time.
On a related note, I am also as bearish, actually more bearish on the biotech sector and may also add BIB (2x long Nasdaq Biotech ETF as a short trade idea soon as well). As always, make sure to adjust your position size accordingly to account for the leverage as well as the expected volatility of the underlying sector or index when trading leveraged ETF. Also make sure to account for any overlap in positioning. For example, both the biotech etfs (IBB/BIB) and the healthcare sector etfs (XLV/CURE) have a great deal of overlap, both with mega-cap stocks like AMGN, GILD, BIIB, & GELG as some the largest weighted components.
As of now, my sole price target on CURE is the first of the 200-day ema (which you can see has acted as support on XLV over the last few years) –OR- the primary (blue) uptrend line, whichever comes first. Additional price targets may be added depending on how XLV & the broad markets trade going forward. As stated in past, when trading leveraged ETFs, my preference is to use the non-leveraged (1x) version of the same sector or index due to the price distortions on the charts of the leveraged ETFs over time caused by the decay. Suggested stop on close (CURE) above 154.50.
Not all brokers will have shares of certain stocks or ETFs available to short at times. At least two of the brokers that I use had shares of CURE available for me to short but if your broker does not, or you plan to short the healthcare or biotech sector in a retirement account (where shorting is prohibited), one could use RXD (ProShares UltraShort
[2x] Healthcare ETF), BIS (Proshares UltraShort [2x] Nasdaq Biotech ETF) or even a straight short on XLV (1x long S&P Healthcare Sector ETF).