Trading Eye For The Rate-Cut Guy

If monetary policy hawks were hoping to get a reprieve from the rising sentiment of an upcoming rate cut, Jerome Powell’s testimony in front of Congress earlier this month was probably not what they had in mind.

Indeed, the Fed Chair’s statements all but assured that the FOMC will cut interest rates when they next meet on July 31—the only question is whether it will be by 0.25% or 0.50%.

As a result, traders have been positioning themselves appropriately. In other words, they’re playing defense.

We can see this in the fund flow data for the Direxion Daily Gold Miners Bull 3X Shares NUGT and Direxion Daily Gold Miners Bear 3X Shares DUST. Over the four weeks ending July 12, DUST has far and away the most inflows of any Direxion product (approximately $212 million). On the other side, NUGT has far and away the most outflows of any Direxion product (approximately $377 million).

In this same four-week period, NUGT and Direxion Daily Junior Gold Miners Index Bull 3x Shares JNUG are the two best-performing Direxion ETFs, up 44% and 49% respectively.

While it’s impossible to know for sure how these flows are being used tactically, the massive flows indicate that active traders are taking an interest in the safe haven asset, and the companies that mine it, ahead of the next Fed meeting.

On that same defensive note, below is a chart showing the three-month performance of the Direxion Daily Consumer Staples Bull 3X Shares NEED and Direxion Daily Utilities Bull 3X Shares UTSL against the Direxion Daily S&P 500 Bull 3X Shares SPXL.

Contrary to what the market’s new all-time highs would indicate, the outperformance of consumer staples and utilities, two of the most defensive sectors, paints a picture of even further investor appetite for defense.

Comparatively, the Direxion Daily Technology Bull 3X Shares TECL, Direxion Daily Semiconductor Bull 3x Shares SOXL, and Direxion Daily S&P Biotech Bull 3x Shares LABU have all underperformed SPXL, and all three are among the leveraged equity ETFs with the most outflows over the last four weeks.

So as trade talks, geopolitical tensions, and interest rate trends continue to build a wall of worry, those who keep a trading eye out for opportunities ─ and get the direction right ─ may continue to find them.

Stay nimble, traders.

These leveraged ETFs seek investment results that are 300% of the return of its benchmark index for a single day. The ETFs should not be expected to provide returns which are three times the return of their benchmarks’ cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. The Direxion Shares 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 investment.

Direxion is a content partner of Benzinga.