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A Long Stretch Looms For These Leveraged ETFs

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A Long Stretch Looms For These Leveraged ETFs

The first-quarter earnings avalanche is coming, and that means imminent tests for some of 2019's resurgent sectors.

That includes regional bank stocks and the related exchange traded funds (ETFs).

What Happened

As measured by the S&P Regional Banks Select Industry Index (SPSIRBKT), regional banks were one of last year's most disappointing groups, but are shedding some of those laggard ways this year. The S&P Regional Banks Select Industry Index is up more than 13 percent year-to-date.

A reversal of fortune for regional banks in 2019 is lifting ETFs tracking the group, including the Direxion Daily Regional Banks Bull 3X Shares (NYSE: DPST). DPST is designed to deliver triple the daily returns of the S&P Regional Banks Select Industry Index.

Why It's Important

The bullish DPST is up more than 44 percent year-to-date, but as is the case with any other leveraged ETF, investors should not hold DPST for extended time frames. The longer a leveraged ETF is held, the greater the chances are that it deviates from it stated daily objectives.

Rather, leveraged ETFs are best deployed around short-term events, such as earnings reports. Traders will certainly have plenty of upcoming chances to employ earnings-driven trades with DPST.

During the week of April 15, more than 40 percent of the S&P Regional Banks Select Industry Index delivers first-quarter results. The following week, that figure jumps to 49.41 percent.

What's Next

Some data points indicate traders are willing to wager on DPST ahead of the aforementioned earnings onslaught. For the five days ended Tuesday, April 9th, DPST's volume was nearly 26 percent above the trailing 20-day average, according to Direxion data.

On the other hand, there have also been signs of positioning in DPST's bearish counterpart, the Direxion Daily Regional Banks Bear 3X Shares (NYSE:WDRW). WDRW attempts to deliver triple the daily inverse returns of the S&P Regional Banks Select Industry Index.

For the 10 days ended April 9, inflows to WDRW equaled 14.60 percent of the fund's assets underlying management, a percentage surpassed by just eight of Direxion's other leveraged ETFs.

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