NAILing Down A Leveraged Homebuilders ETF

Homebuilders stocks and corresponding exchange-traded funds are performing well this year, as highlighted by a 29 percent in the S&P Homebuilders Select Industry Index. Sound fundamentals underpin the rally in homebuilders equities, boding well for aggressive traders considering the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NYSEARCA:NAIL).

NAIL, the dominant name among leveraged homebuilders ETFs, looks to deliver triple the daily returns of the widely followed Dow Jones U.S. Select Home Construction Index. That benchmark follows companies “related to homebuilding, including home construction and producers, sellers and suppliers of building materials, furnishings and fixtures and also home improvement retailers,” according to Direxion. 

Like any leveraged ETF, NAIL is volatile, but it is worth noting that the Dow Jones U.S. Select Home Construction Index has a three-year standard deviation of 17.3 percent, which is well above the comparable metric on broad market benchmarks. That serves as a reminder that NAIL is a short-term trade, not a buy-and-hold investment.

What Moves NAIL

The index NAIL tries to deliver triple the daily returns of is top heavy. D.R. Horton Inc. DHI, Lennar Corp. LEN, NVR Inc. NVR, Pulte Group Inc. PHM, Toll Brothers Inc. TOL and Home Depot Inc. HD account for a significant portion of the benchmark's weight.

“The sector is rallying off strong fundamental data. Five of the indexes’ top six holdings have reported earnings for the September quarter-end, and all of them—Lennar, NVR, PulteGroup, Home Depot, and D.R. Horton—had earnings per share that either met or exceeded Wall Street expectations,” said Direxion. “These six stocks account for about 50 percent of the Dow Jones U.S. Select Home Construction Index’s holdings, and all are up double figures since Labor Day.” 

For the five days ended Dec. 6^th, NAIL's volume was 105.1 percent above the trailing 20-day average, according to issuer data.

Positive Data

Other data points support the near-term viability of NAIL.

“There has also been strong economic data post-hurricane season,” said Direxion. “The Census Bureau reported that U.S. housing starts for Oct. came in at 1.29 million, higher than the 1.185 million economists had expected. It was also a sharp increase from the 1.135 million housing starts in September, though that was likely due to the impact of several damaging hurricanes to the southeast.”

NAIL is averaging daily inflows of nearly $1.5 million over the past month.

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