Market Overview

4 Leveraged ETFs Poised to Deliver Big Gains (TYD, SJI)

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Earnings Scheduled For May 9, 2014

Bullish and bearish leveraged ETFs are frequently the source of much criticism and scrutiny. Much of that stems from the misuse of these products as investments, not trades.

Daily recalculations and frequent rolling of derivative contracts used to juice these funds' returns often lead to returns that, over time, look nothing like what the underlying index delivered. The reality is that leveraged ETFs get a bad rap, but much of that tarnished reputation comes from the fact these products are not suitable buy-and-hold investments.

In other words, proper use of these ETFs can lead investors to some impressive short-term gains. With volatility high and the bears looking as though they have gained some steam in recent days, the current market environment is ideally suited to initiating a couple of quick trades with a leveraged ETF or two. These four ETFs look especially appealing.

ProShares UltraPro Short QQQ (NASDAQ: SQQQ)
Apple's (NASDAQ: AAPL) earnings report was a buzz kill. Apple's profit report and guidance were anticipated to catalyze the market to move higher again. Instead, the largest U.S. company by market value provided disappointing numbers that have endangered several ETFs with large weights to the stock.

One of those ETFs is the PowerShares QQQ (NASDAQ: QQQ), colloquially known as the Nasdaq 100 ETF. SQQQ is the triple-leveraged bearish equivalent of QQQ. With Apple's results disappointing and Amazon's (NASDAQ: AMZN) quarterly update scheduled for Thursday, SQQQ could be worth a brief trade.

ProShares Ultra Short Industrials (NYSE: SJI)
A surprisingly strong earnings report from Dow component Caterpillar (NYSE: CAT) is buoying the industrial sector a little bit on Wednesday. Plus, it is worth noting that in the past month, the Industrial Select Sector SPDR (NYSE: XLI) and the iShares Dow Jones U.S. Industrial Sector Index Fund (NYSE: IYJ) are each up 1.4 percent.

That does not hide the fact that economic bellwether UPS (NYSE: UPS) was rocked by a poor earnings report on Tuesday. If XLI and IYJ breakdown, head to SJI. SJI tracks the same index as IYJ on a double-leveraged inverse basis.

Direxion Daily Gold Miners Bear 3X Shares (NYSE: DUST)
Shares of precious metal miners and the relevant ETFs have flummoxed investors for nearly two years now. The confusion comes from rising gold prices and lagging performance for mining equities. Aside from a decent run higher by the miners in late May into early June, the trend has been lower for this group.

Investors now know a few things about this situation. First, it is possible for gold futures to move higher while the miners get left behind. Second, this has been playing out for so long that calling a bottom or rally in the miners is becoming harder and harder. Finally, miners are stocks, meaning that even if gold futures move up in a down market for equities, that does not mean miners will be treated any differently than any other sector that is drawing selling pressure.

All of those factors make the Direxion Daily Gold Miners Bear 3X Shares worth getting to know on a short-term basis.

Direxion Daily 7-10 Year Treasury Bull 3X Shares (NYSE: TYD)
Along with the usual words of caution relevant to leveraged ETFs, investors should note TYD is thinly traded with average daily volume of just over 3,100 shares. On the upside, investors are still putting money to work in fixed income funds, a trend that has helped TYD jump 15 percent year-to-date.

That does not mean TYD should be held for six or seven months, but the statistic underscores this ETF's utility in terms of providing a quick jolt of added upside for a bond portfolio.

For more on leveraged ETFs, click here.

Posted-In: Long Ideas Sector ETFs Bonds Broad U.S. Equity ETFs Short Ideas Specialty ETFs Futures Commodities Best of Benzinga

 

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