In the last post titled How to Trade the CNBC Million Dollar Challenge (Part 1), I discussed how to use leveraged ETFs to trade the market volatility. I discussed using two ETFs that track the S&P 500 but are levered to return twice (200%) of the daily performance. The first ETF is Proshares Ultra S&P 500 (SSO) that is used to capture the UPSIDE movements of the S&P 500. The pair of this trade is the Proshare UltraShort S&P 500 (SDS) that is used to capture the DOWNSIDE movement of the S&P 500 at twice (200%) of the daily performance. Basically, you but the Levered ETF that is moving with the market – SSO for increases and SDS for decreases in the market.
Today’s pair trade follows the same trading philosophy as the S&P 500 lefered ETFs. This trade will use the QQQQ or Nasdaq that is frequently classified as being more technology companies as well as more volatile. ProShares Ultra QQQ (QLD), formerly Ultra QQQ ProShares, seeks daily investment results that correspond to twice the daily performance of the NASDAQ-100 Index. ProShares UltraShort QQQ (QID), formerly UltraShort QQQ ProShares, seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ-100 Index (the Index). These two ETFs will move in opposite direction but not always with the S&P 500 ETFs discussed yesterday.
The CNBC Portfolio strategy is to buy the ETF, QLD or QID, based on the movement of the QQQQ. At the market close on 9/29/2011, the QLD was down while the QID was up for the day. The ETF track the Nasdaq 100, QQQ, was down for the trading day. Therefore, your best trade for yesterday was the QID which is used when the QQQ is down. You should watch the technicals of the QQQ, QID, QLD to determine the intraday/short-term trend to determine which levered ETF to be invested in each day in your CNBC Portfolio. The chart below compares the QLD to the QID over the last month. As you can see, these ETFs move in exactly opposite directions.
For your CNBC Portfolio, you should be invested in the SSO or SDS for one trade and the QLD or QID for your second pair trade. You can adjust these positions as necessary to stay with the levered ETF moving with the market direction of the S&P 500 or the Nasdaq 100 index. This is an excellent trading strategy to win the Million Dollar Challenge and the weekly prizes.