Apparently, Some Traders Are Nervous About Bank Earnings

Citigroup C got the party started on Monday while JPMorgan Chase JPM, Goldman Sachs GS and others in the financial space, continued the earnings parade yesterday. In other words, its financial services earnings season and there are a slew of reports coming from the sector this week and into next week.

What Happened

With so many earnings reports coming in over the next few days from the S&P 500's third-largest sector, it would be reasonable to expect that traders would be considering the Direxion Daily Financial Bull 3X Shares FAS or the bearish equivalent, the Direxion Daily Financial Bear 3X Shares FAZ.

With a spate of short-term catalysts, those being the aforementioned avalanche of earnings reports, the time is right to consider leveraged exchange-traded funds such as FAS and FAZ, but traders appear to be on the sidelines for the time being.

Why It's Important

For the five- and 10-day periods ending Friday, July 12, FAS saw outflows of $63.11 million and $88.69 million, respectively, good for the largest outflows among all Direxion leveraged ETFs over those time frames, according to issuer data.

That could be a sign that traders believe that following the recently released results of the Federal Reserve's stress tests that plenty of good news is already baked into bank stocks or that traders are fretting about lower interest rates weighing on banks' net interest margins.

On Monday, Citigroup reported second-quarter earnings of $1.95 per share on revenue of $18.76 billion, beating Wall Street estimates calling for earnings of $1.81 on revenue of $18.49 billion, but the bank's net interest margin fell to 2.67% from 2.70%.

What's Next

While data confirm traders have been scampering out of the bullish FAS, they have not necessarily been flocking to the bearish FAZ.

Volume in FAZ has been trending higher, but the bearish bank ETF saw inflows of just $3.49 million for the five days ending July 12, according to Direxion data.

Related Links

Don't Forget Mid-Caps

A Practical Prime Day Play