ProShares SQQQ ETF stock crashed to a record low: buy the dip?

Technology stocks have been in a strong uptrend this year. The tech-heavy Nasdaq 100 index has risen in the past five straight weeks and is approaching the psychological level of $18,000. It has risen by over 72% from its lowest point in 2022.

This strong performance has led to substantial returns for ETFs that tracks the index. The ProShares UltraPro QQQ (TQQQ) has surged to its March 2022 high. It has risen by 277% from its 2022 lows, making it one of the top-performing ETFs in the market.

SQQQ ETF chart

Shorting America’s technology companies has been one of the worst investing strategies ever. This explains why many well-known short-sellers like Jim Chanos and Andrew Left of Citron Research have shuttered their operations in the past few years.

The best way to look at this risk is to consider the closely watched ProShares UltraPro Short QQQ (SQQQ) ETF. As shown below, the ETF has crashed to a record low of $11.12, which is much lower than its all-time high. It has fallen by more than 99% from its highest point in the past five years.

Despite this, there are signs that investors are still adding funds to the ETF. Data compiled by ETF.com shows that the fund has added over $100 million in assets this year. Most of these inflows happened last week when investors added $180 million in the fund. Total inflows this year stand at over $435 million while outflows have been $336 million. As a result, the fund now has $3.1 billion in assets.

Higher SQQQ inflows could be a sign that some investors believe that technology stocks will retreat this year. Analysts believe that this view is wrong since tech companies have momentum as investments in artificial intelligence rise. The most recent results also shows that companies have started to grow their earnings. According to FactSet, most companies have published strong results this season.

Further, there are rising hopes that the Federal Reserve will start to cut interest rates later this year even as the economic strength continues. A likely reason for this cut is that some strains are happening in the market. For example, credit card delinquencies have jumped while the commercial real estate (CRE) industry is struggling. 

Therefore, this means that the SQQQ ETF will likely continue falling in the coming months barring a major black swan event.

For starters, SQQQ is a popular leveraged ETF that seeks to achieve three times the inverse the daily returns of Invesco QQQ or the Nasdaq 100 index. This means that if the index rises by 1%, the ETF will drop by 3%. For example, QQQ jumped by 0.98% on Friday while the SQQQ fund dropped by 2.88%.

Worse, the fund is also highly expensive since its expense ratio stands at 0.95%. As a result, I warned that investing in it was an expensive way to go broke. This view has worked well now that the ETF has dropped by 17% this year while QQQ is up by 6.7%.

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