BEAR FUNDS CONTINUE TO BENEFIT FROM MARKET DROP -- NASDAQ 100 CONTINUES TO FALL -- S&P 500 RETESTS 200-DAY LINE

BEAR FUNDS ARE STILL RISING... A number of readers have asked for an update on a couple of bear funds that I recommended in mid-May. As you might expect, they've been rising as the market has been falling. Chart 1 shows the ProFunds Short OTC Fund (plotted through Monday) which is the stronger of the two I recommended. That's because it's the inverse of the Nasdaq 100 which has been the weakest market index. Chart 1 shows the SOPIX consolidating just below its October peak at 19.97. Today's market drop may have pushed the bear fund closer to an upside breakout. Chart 2 shows the Nasdaq 100 falling again today. As long as the NDX continues to fall, the SOPIX will continue to rise. It would take a close above the June high at 16.27 by the NDX (or a close below the June low at 19.39 by the SOPIX) to tempt me into some profit-taking in the bear fund.

Chart 1

Chart 2

PROFUNDS BEAR FUND BACK OVER 200-DAY LINE ... The ProFunds Bear Fund climbed over its 200-day moving average in mid-May. After dipping below it briefly last Friday, it's back over it again. The bear fund is also plotted through Monday. Chart 4 shows the S&P 500 on which the BRPIX is based (but inversely). Chart 4 shows the S&P 500 threatening its 200-day line once again. Needless to say, that puts the SPX (and a lot of other market indexes) at a crucial chart juncture. If the market is going to stabilize, this would be the spot for it to do so. A couple of closes below the 200-day line (and especially a Friday close) would signal even lower stock prices. That would be good for bear funds which trend in the opposite direction. I've explained before that I don't view bear funds as long-term holdings. I view them as trading vehicles that enable investors to hedge their stock holdings against a market drop or a way to profit from that drop. They have to be monitored closely like any other position. Bear funds are a good place to be as long as the market continues to drop. I think the odds favor that happening. But a lot will depend on whether or not the 200-day line holds. It would take an S&P 500 close over its June peak at 1290, or a close by the BRPIX below its June low at 29.47, to justify taking profits in the latter.

Chart 3

Chart 4