Fear is making a return to an overbought market.
Not only did the major indices become technically stretched on RSI, MACD, and Williams’ %R, but the Volatility Index (VIX) became too complacent at around 13.33. In fact, many times, when the VIX dips below 17 (again, a sign of complacency), we’ll typically see it spike higher shortly after, which can also lead to a dip in the markets. Not helping, Fitch just downgraded the U.S. credit rating to AA+ from AAA+, citing “expected fiscal deterioration over the next three years.” That being said, investors may want to consider downside protection.
One way to do that is with an ETF, such as the ProShares UltraShort Dow 30 ETF (DXD). With an expense ratio of 1%, the ETF seeks to produce a return that is -2x the daily performance of the Dow Jones Industrial Average. In short, the DXD does well as the Dow Jones drops.