Watch ProShares Ultra Short Financials (SKF) for Pullback and Opportunity to Buy

09/15/2008 12:00 am EST

Focus: ETFS

This exchange traded fund (ETF) seeks daily to achieve results that are twice the inverse of the daily performance of the Dow Jones US Financial Index.

In a newsletter I wrote back on August 15, I said "After the massive rally in the financial stocks that drove this inverse fund down to its 200-day moving average at $110, the SKF reversed at precisely that line. With the financial stocks again flashing near-term sell signals, an opportunity may exist for those with the cash reserves and a strong stomach to jump on this contra fund. If, on market weakness, the SKF can be bought on a pullback to the 200-day moving average at $114, traders could net a nice trade to $130-$140."

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Since then, the index dropped briefly below $100. For all of those who took positions in the SKF, a pop to $140 to $160 could be in the wind.

For those not yet in this contra fund, please remember that the leverage of 2-to-1 in this fund makes it very volatile. It would not be wise to chase this fund today, but wait for a profit-taking correction before entering new positions.

By Sam Collins of OptionsZone.com

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