The Xchange Blog

Back to School for Traders

The Haves and Have-Nots

School’s back in session. And in addition to buying new pencils, backpacks, and iPhone 8s for their kids, traders are back to their keyboards looking for the next breakout. 2017 has been a year of haves and have-nots with market sectors heading in different directions. While certain sectors have been recent winners that will continue to run into year-end, certain other sectors haven’t done so well recently, and may be placed in the bargain bin for a back-to-school shopping spree. These sectors are a mix of year-to-date losers and solidly performing sectors that have recently had a bad run. Of course, oftentimes the losing stocks stay losers in the short term. But we aren’t trying to make predictions. We’re just giving you food for thought to look for a reversal into the end of the year or even to keep trading a trend.

The sectors below have been beaten up pretty good recently. In this article, we’ll focus on retail, energy, banks, and transportation stocks.

The S&P 500 has done well along with financials while transportation and energy stocks have done worse, as you can see in the chart below. Note that TPOR (Daily Transportation Bull 3X Leveraged ETF) isn’t represented in the chart since it just launched in May.


Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance, please visit direxioninvestments.com. 

Should Energy Stocks Go in Our Basket?

Energy has been tough this year with the S&P 500 Energy Sector down 17% through the end of August. But there may be a silver lining for the maligned sector. US oil inventories are now the lowest they’ve been since early 2016. Natural gas inventories are within 1% of their five-year average and much lower than this time last year. And the Baker Hughes rig count, which rose almost in a straight line from June 2016 to June 2017, has flattened out with little to no net new rigs coming online in the last three months. Another piece of good news is that the S&P 500 energy sector has been positive in October, November, and December on average over the last ten years. OPEC continues to try to freeze its output as well.

Unfortunately, though, there are just too many wild cards to contend with on a global level to make a call. Here’s how ERX (Daily Energy Bull 3X Leveraged ETF) and GASL (Daily Natural Gas Related Bull 3x Leveraged ETF) have fared so far this year.


Source: Bloomberg. Past performance does not guarantee future results.

Whether you want to bet on these trends continuing with ERY or GASX or on a reversal ERX or GASL, Direxion has you covered.

Planes, Trains, and Automobiles

The Dow Transportation Index has only returned 3% through August this year, underperforming the S&P 500 by quite a margin. Planes and trains have gone in opposite directions; rail stocks have recovered a bit while airline companies are struggling. Shippers like FedEx and UPS are just doing okay.

The good news is the Transport Index historically tends to perform fairly well the last three months of the year with packages shipping and families traveling for the holidays. Whether it rises or not, TPOR (Daily Transportation Bull 3X Leveraged ETF) can be a good tool in your investing workshop. See how TPOR has performed since its inception below. Note the underperformance not only for the year but also recently in particular.


Source: Bloomberg. Past performance does not guarantee future results.

Could Financials Become the Teacher’s Pet?

Financials have had a decent year with the S&P 500 Financials Index up 6% year-to-date or YTD. But recently, they’ve been struggling. At this point, there seems to be no Dodd-Frank repeal legislation in the works, and the ten-year yield has dropped from 2.5%+ to the low 2% range. So, while there seems to be plenty that could go right for these stocks—rates could go up, regulations could ease, or the economy could reaccelerate—right now nothing seems to be going very well. Historically, these stocks are a bit of a mixed bag from a return perspective from September to December in the last ten years. So which leveraged ETF do you trade? FAS (Daily Financial Bull 3X Leveraged ETF) or FAZ (Daily Financial Bear 3X Leveraged ETF) or even DPST (Daily Regional Banks Bull 3X Leveraged ETF) or WDRW (Daily Regional Banks Bear 3X Leveraged ETF), which have had a much tougher year? See the YTD performance below.


Source: Bloomberg. Past performance does not guarantee future results.

Back-to-School Shopping Can be Rewarding

With sweater weather coming up and everyone back in school, it’s a great time to reexamine your trading strategy through the end of the year.

Should you look at the energy sector, the worst performer of the year so far? There are many reasons to like the sector, but OPEC’s struggle to keep supply low has been a big issue. Will cooler temps and lower inventories help?

Or should you focus on the financials, a sector with lots of potential but also facing headwinds right now?

Or finally, should you look at the sector everyone uses into the holiday season; transportation? Whatever sector you choose, and whichever direction your market analysis takes you, Direxion has plenty of leveraged ETFs to get you back to school in style.

 

 


Performance (as of 6/30/2017)

Ticker Fund Name   1 Mo % 3 Mo % YTD 1 YR % 3 YR % 5 YR % S/I % Inception Expense Ratio (Gross/Net) %
ERX Daily Energy Bull 3X Shares NAV -1.63 -20.69 -36.92 -18.29 -42.19 -8.90 -8.18 11/6/2008 1.09 / 1.08
Market Close -1.81 -20.77 -37.03 -18.35 -42.20 -8.83 -8.19
ERY Daily Energy Bear 3X Shares NAV -0.73 19.35 41.95 -9.23 2.23 -27.19 -43.17 11/6/2008 1.15 / 1.09
Market Close -0.81 19.09 42.08 -9.49 2.08 -27.30 -43.18
FAS Daily Financial Bull 3X Shares NAV 13.72 10.98 20.65 93.41 25.46 45.92 2.09 11/6/2008 1.06 / 1.05
Market Close 13.91 11.24 20.76 93.99 25.49 46.05 2.12
FAZ Daily Financial Bear 3X Shares NAV -12.77 -12.41 -22.22 -55.08 -37.98 -45.78 -60.12 11/6/2008 1.13 / 1.10
Market Close -12.82 -12.51 -22.05 -55.10 -37.98 -45.81 -60.12
GASL Daily Natural Gas Related Bull 3X Shares NAV -8.69 -42.12 -54.30 -49.84 -91.06 -72.36 -62.82 7/14/2010 1.21 / 1.08
Market Close -9.07 -42.12 -54.53 -49.83 -91.07 -72.35 -62.84
GASX Daily Natural Gas Related Bear 3X Shares NAV 1.37 46.27 63.97 -2.89 -60.00 12/3/2015 1.79 / 1.10
Market Close 1.56 46.20 63.95 -2.64 -60.02
DPST Daily Regional Banks Bull 3X Shares NAV 18.84 -0.66 -9.05 138.52 26.37 8/19/2015 2.75 / 1.04
Market Close 19.34 -0.88 -8.74 145.29 26.50
WDRW Daily Regional Banks Bear 3X Shares NAV -18.46 -8.42 -11.58 -72.46 -55.33 8/19/2015 3.39 / 1.10
Market Close -20.95 -8.95 -15.76 -73.27 -55.61
TPOR Direxion Daily Transportation Bull 3X Shares NAV 13.00 13.36 5/3/2017 1.09 / 1.08
Market Close 11.29 11.20

An investor should consider the investment objectives, risks, charges, and expenses of Shares carefully before investing. The prospectus and summary prospectus contain this and other information about Shares. To obtain a prospectus or summary prospectus please visit www.direxioninvestments.com/regulatory-documents. The prospectus and summary prospectus should be read carefully before investing.

There is no guarantee that the funds will achieve their objectives. The Leveraged and Inverse ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking Daily leveraged investment results and intend to actively monitor and manage their investments.   Investing in the Funds may be more volatile than investing in broadly diversified funds. The use of leverage by a fund means the Funds are riskier than alternatives which do not use leverage.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in securities of a Fund’s underlying index, for the Bull Funds, Daily Index Correlation Risk and Other Investment Companies (including ETFs) Risk, and for the Bear Funds, Daily Inverse Index Correlation Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Distributor: Foreside Funds Services, LLC