Direxion's Inverse ETF SPDN Allows Investors To Profit From Market Carnage

Wall Street is on the verge of inking a conspicuous downcycle for the week, with the major indices flashing red in late-afternoon trading on Friday. The benchmark S&P 500 is down about 0.7% against Thursday's close, and is about to book a loss of more than 2% for the business week ending July 19.

Fundamentally, losses in the technology sector have weighed on broader sentiment. The innovation-heavy Nasdaq Composite is down roughly 0.8% on Friday afternoon and is projecting to incur a loss of over 4% below parity for the week.

One specific name that stood out for the wrong reasons is CrowdStrike Holdings Inc. CRWD. According to Benzinga's Piero Cingari, a technical error caused widespread disruptions, impacting critical service infrastructures such as airports, harbors, financial institutions and hospitals. Subsequently, CRWD stock suffered a loss of more than 12%.

Another major headwind is a dip in overall market sentiment, as determined by the CNN Money Fear and Greed index. The sentiment reading moved to the Neutral zone on Thursday, according to Benzinga's Avi Kapoor. Contributing to the erosion in optimism is the implications behind the latest gauge in labor market health.

U.S. initial jobless claims increased by 10,000 to 243,000 in the week ending July 13. This figure was slightly above economists' projection of 230,000.

The ETF: Generally, retail investors have little recourse but to sit and wait for the volatility to fade away. However, those who want to take an active approach with their portfolio may consider the Direxion Daily S&P 500 Bear 1X Shares (SPDN). The SPDN is an inverse exchange-traded fund. Rather than rising in value when the underlying S&P 500 swings up, this ETF becomes profitable when the benchmark index falls.

One of the benefits associated with the Direxion inverse fund is ease of access: investors simply buy units of SPDN, just like they would buy shares of any publicly traded enterprise. However, the main area to watch is the length of exposure. Due to the compounding effect of inverse funds, SPDN is not appropriate for trading periods greater than one day.

The SPDN Chart: While the major indices have struggled this week, the opposite framework held true for the SPDN ETF. In the past five sessions, the inverse fund was on pace for a 3% gain. Below are some factors to consider:

• Following the end of the July 18 session, the closing price of SPDN was $11.64, just a hair above its 20-day exponential moving average.
• Friday's session represented an important bullish signal as SPDN rocketed higher after some brief early-morning wobbles. It now sits about 1% off from its 50-day moving average ($11.84).
• The volume level heading into the weekend landed at around 2.19 million units. That's below the average volume reading of 2.72 million units, although trading volume tends to be lower on Fridays.
• Perhaps most importantly, SPDN is currently trading above a technical resistance line that developed around the $11.70 level.

Featured photo by Sonyworld at Pixabay