With biotechnology stocks and the related exchange-traded funds recently showing some signs of life, it could be just a matter of time before aggressive traders embraced leveraged healthcare ETFs.
What Happened
The Direxion Daily S&P Biotech Bull 3X Shares LABU is one of the premier avenues for juicing short-term biotechnology returns and the triple-leveraged fund is doing just that with a gain of 21.21% over the past week.
LABU is designed to deliver triple the daily returns of the S&P Biotechnology Select Industry Index (SPSIBITR), an equal-weight index.
Why It's Important
As Monday's news of Pfizer Inc. PFE acquiring Array BioPharma ARRY indicates, there remains robust appetite among larger, blue-chip biotechnology and pharmaceuticals companies for their more nimble peers, particularly the companies with immunotherapy and oncology exposure.
There have been some other catalysts fueling LABU's recent run, including some political help. Earlier this month, President Trump “was expected to sign an executive order meant to streamline regulations and cut costs associated with biotechnology,” according to CNBC.
Also of importance for short-term traders considering LABU is the triple-leveraged ETFs flirtation with the $49 area, which it managed a modest close above on Tuesday. That is a resistance area and a strong move above that price range could enable LABU to easily added the 12.55% necessary to reclaim its 200-day moving average, something the fund has not done since October.
What's Next
What is curious about the recent bullishness in LABU is that it hasn't been accompanied by noteworthy inflow or volume spikes, two traits that frequently mark this fund's rallies.
Over the trailing five- and 10-day periods, LABU is not among the top Direxion leveraged ETFs in terms of inflows, nor is it among the worst offenders for outflows, according to issuer data.
Perhaps the good news is that LABU's bearish counterpart, the Direxion Daily S&P Biotech Bear 3X Shares LABD has not been seeing increased activity, either. LABD attempts to deliver triple the daily inverse returns of the S&P Biotechnology Select Industry Index.
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