CHARTING BEAR FUNDS WITH PROFUNDS CARPET -- CHARTING A COUPLE OF ULTRASHORT FUND LEADERS -- A LONGER LOOK AT RYDEX URSA FUND -- NO MAJOR BUY SIGNAL YET IN BEAR MARKET FUNDS

WHERE TO FIND PROFUND BEAR FUNDS... I promised yesterday to look at a couple of ProFunds Bear funds today. To find them, click on Market Carpets (on main menu) and then ProFunds Carpet. Click on Inverse (at the bottom left) and you'll see eight different bear funds. Chart 1 is a sample of what you'll see (with a couple of things that I've added). The eight funds (with symbols) are listed in the black box to the bottom right ranked in order of relative strength. You can see a chart by clicking either on the name of any fund or on any box. By right clicking on the box section, you can add the stock symbols as I've done here. I've also moved the time bar at the bottom of the chart back forty days to compare their performance over the last two months. The greener the box the stronger the performance. As the table shows, the top performing bear funds over the last forty days have been the ProFunds UltraShort OTC Fund with a gain of 7.79%, the UltraShort Small Cap Fund at +7.33%, and the UltraShort Dow 30 Fund at +5.5% since the start of February. Let's chart a couple of those leaders.

Chart 1

PROFUNDS ULTRASHORT OTC FUND... Since the Nasdaq has been the weakest part of the market, it's no surprise that this fund has done the best of the bear funds. It's almost a mirror image of the Nasdaq. The chart (plotted through Monday) shows that the bear fund is now in an area of resistance and reacting from an overbought condition. The slight loss of upside momentum is seen in the 9-day RSI line which has dropped from the 70 level. There are three reasons why the bear fund is in resistance. One is the fact that it's testing its 200-day moving average. The second is the fact there's chart resistance along the summer low. Third, the UltraShort OTC fund has retraced 38% of its August/December decline. That suggests the likelihood of a short-term pullback -- possibly to its 50-day average. The daily MACD lines are positive, but also show some short-term negative divergence. What the chart means is that anyone looking to buy into this aggressive bear fund should probably wait either for a pullback or a decisive close over its 200-day moving average.

Chart 2

PROFUNDS ULTRASHORT DOW 30 FUND... This fund naturally has a much closer resemblance to the Dow Industrials (but upside down). The UltraShort Dow 30 Fund (through Monday) has reached chart resistance at its January high near 27 and is in overbought territory. It's also near its 200-day moving average which should provide more resistance. The 9-day RSI line shows the bear fund backing off from overbought territory over 70. The MACD histogram bars are still positive but converging. That suggests some short-term selling. As I suggested yesterday with the Rydex URSA bear fund, a pullback to its 50-day moving average may provide a better entry point. No major buy signal will occur, however, until this fund closes decisively above its January high and its 200-day average. Until that happens, any initial long positions should be kept relatively small and viewed as an anticipatory probe. The pullback in the bear funds will continue as long as the short-term bounce in the market continues.

Chart 3

A LONGER LOOK AT THE RYDEX URSA BEAR FUND... Yesterday I showed the Rydex URSA Bear fund starting to back off from its January high at 8.80 which isn't too far from its 200-day moving average. Chart 4 shows a chart of the bear fund going back a year and reveals that prices are also testing a falling resistance line drawn over the August/October highs. That may also cause some short-term selling, especially with the 9-day RSI line backing off from overbought territory. Here again, those looking to take a long position should probably wait for a pullback or a clear upside breakout. For a more comprehensive discussion of bear funds -- and guidelines for short selling -- please refer back to a message I wrote in January (January 20, 2005). That earlier piece charts an improving long-term picture for bear funds. But, as it says in that January 20 headline, there's "No Major Buy Signal Yet in Bear Market Fund".

Chart 4