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Loving Leverage With This LatAm ETF

October 18, 2016 4:34 pm
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Loving Leverage With This LatAm ETF

Before diving into further examination of the Direxion Daily Latin America Bull 3x Shr ETF (NYSE: LBJ), it should be noted that, as this exchange-traded fund's name implies, it is a leveraged play on Latin American equities.

In other words, this is a volatile instrument that should only be used for short-term trades. In this case, “short-term” means a day or a few days.

With that out of the way, LBJ is a leveraged ETF that risk-tolerant traders should have on their radars over the, you guessed it, near or short term.

LBJ tracks the S&P Latin America 40 Index. According to Direxion, this index “is an equity index drawn from five major Latin American markets: Brazil, Mexico, Chile, Colombia and Peru. It is designed for investors seeking broad market exposure through an index that is efficient to replicate. The index constituents are leading, large, liquid companies from the Latin American markets with an average market capitalization of $18.66 billion and a median market capitalization of $11.91 billion as of June 30, 2016."

With stocks in Brazil (Latin America's largest economy) soaring this year, LBJ has nearly doubled in value year-to-date. Again, LBJ is to be dated, not married, but that year-to-date return figure underscores the ETF's potency as a short-term trade. And that potency may be on display again soon.

“From a technical perspective, LBJ is currently in a short-term uptrend. The current price action is positive. LBJ price is trending upwards and above current resistance level of 100. The 7-day moving average is above the 20-day moving average, supporting a possible uptrend continuation from a technical prospective,” said Direxion in a recent note.

Also worth noting is LBJ's potential as post-election trade. As has been widely noted, Republican nominee Donald Trump is seen as a negative for Mexican stocks and the peso. The next logical conclusion is that if Democratic nominee Hillary Clinton wins the election, Mexican stocks will rally.

That would be good news for LBJ because Mexico is the second-largest country in LBJ's underlying index behind Brazil at a weight of 26.7 percent.

“We note that RSI is currently at 62.89, above the generally accepted uptrend technical level of 50. The MACD is currently above the signal line and the zero line. A continual widening spread between the MACD and the signal line continues to support the current technical trend,” adds Direxion.

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