Inklings Of Upside For A Leveraged Biotech ETF

The Direxion Daily S&P Biotech Bull Shares LABU lost just over a third of a percent Tuesday, but even with that modest loss, the first triple-leveraged bullish biotechnology exchange traded is one of Direxion's best performing ETFs over the past few days with an April gain of over 12 percent.

Previously beloved biotech ETFs have been beaten up this year. Benchmark funds, such as the SPDR S&P Biotech ETF XBI, the ETF that LABU is the triple-leveraged answer to, lost more than 20 percent in the first quarter. For its part, LABU has lost nearly two-thirds of its value this year and was recently reverse split.

So it's reasonable to say it's going to take more than just a few days of bullish performances to lure investors to a volatile ETF like LABU. For adventurous investors, there's good news and that's an improving technical scenario for LABU.

"From a technical perspective, LABU is currently in a short-term uptrend. Price action is trending higher with the 7-day moving average currently above the 20-day moving average. The RSI is currently at 56.88 with further expansion possible. The current level is above near-term reversal levels established in March of this year. The MACD is above the signal line, and is trending towards the zero line. A widening gap between MACD and the signal line will continue to support a further uptrend," said Direxion in a recent note.

XBI is not for the risk-averse investor. A hallmark of many equal-weight ETFs is a tilt toward smaller stocks not present in cap-weighted funds. XBI's holdings have a weighted average market capitalization of $9.8 billion. As a result, although XBI has been the best-performing biotech ETF over the past three years, it has also been the most volatile. Translation: LABU is not for the squeamish investor.

Still, data indicate LABU is showing signs of life. For example, for the five-day period ended April 5, LABU's volume was more than 29 percent above the trailing 20-day average. Additionally, LABU has averaged daily inflows of nearly $158,000 over the past 30 days, according to Direxion data.

"Since 2014, Scientific Beta’s multi-factor approach to Japan has resulted in better performance, lower volatility, and lower drawdowns than both the hedged and unhedged versions of the MSCI Japan Index," said Global X in a recent research note.