Market Overview

Apple's $1 Trillion Quest Lures Contrarians To A Leveraged ETF

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Apple's $1 Trillion Quest Lures Contrarians To A Leveraged ETF
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On Thursday June 7th, Apple Inc. (NASDAQ: AAPL) closed with a market capitalization of $972.1 billion meaning its ascent to being the first company with a market value of $1 trillion is probably a matter of “when,” not “if.”

In theory, Apple's ongoing ascent to heights never seen by any company in the history of financial markets should be tempting aggressive traders to get involved with leveraged technology exchange traded funds (ETFs) heavy on Apple. In reality, that has not been the case.

What Happened

Apple is the largest component in the Technology Select Sector Index at 14.76 percent of that benchmark's weight. That is nearly 300 basis points more than the index allocates to Microsoft Corp. (NASDAQ: MSFT), its second-largest holding.

The Direxion Daily Technology Bull 3X Shares (NYSE: TECL) attempts to deliver triple the daily returns of the Technology Select Index making the Direxion fund an indirect though still potentially rewarding bet for Apple bulls.

Why It's Important

Shares of Apple are up nearly 4 percent over the past month, but that is not luring traders to TECL. Rather, traders appear to be taking profits in the triple-leveraged tech ETF. Over the past 30 days, TECL is averaging daily outflows of $1.16 million, according to issuer data.

While the flows are far from dollar-for-dollar with TECL, the Direxion Daily Technology Bear 3X Shares (NYSE: TECS) is luring traders even as Apple surges. TECS, which attempts to deliver triple the daily inverse returns of the Technology Select Sector Index, is averaging daily inflows of nearly $159,000 over the past month, according to Direxion data.

What's Next

It remains to be seen if $1 trillion provides some sort of psychological resistance for Apple stock. If that is not the case, traders holding TECS will suffer. As it is, the inverse leveraged tech ETF is lower by 14 percent over the past month, reminding traders that no leveraged ETF should be held for more than a day or two.

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