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A Leveraged ETF On The Cusp Of Something Big

April 20, 2018 4:40 pm
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The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSE:GUSH) closed Friday with an April gain of over 34 percent, making it the second-best performer among Direxion's leveraged bullish exchange-traded funds (ETFs) on a month-to-date basis.


These gains are arriving as the S&P Oil & Gas Exploration & Production Select Industry Index is approaching multi-year highs. GUSH attempts to deliver triple the daily returns of that index.


What Happened


Predictably, energy stocks are being propelled by rising oil prices. On top of that, some technical analysts believe the S&P Oil & Gas Exploration & Production Select Industry Index is on the brink of a major multi-year breakout. As it is, that index is up about 14 percent over the past month, underscoring the sensitivity of exploration and production stocks to oil prices.


GUSH's underlying index is heavily focused on oil and gas exploration companies with some exposure to refiners and traditional integrated oil names.


Why It's Important


In the current environment, GUSH could remain a compelling short-term play as long as risk-tolerant traders heed the advice of not turning this leveraged ETF into a long-term investment. Exploration and production stocks are typically more volatile than their integrated peers, a fact borne out by the S&P Oil & Gas Exploration & Production Select Industry Index being more volatile than broader energy benchmarks.


There are some factors supporting more near-term upside for GUSH, including speculation that Saudi Arabia would like to push oil prices even higher.


Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight,” according to Reuters.


What's Next


Only time will tell what is next for GUSH, but data suggest traders are leaning bearish. GUSH's bearish counterpart, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (NYSE:DRIP), is averaging daily inflows of $1.79 million over the past month while GUSH is losing an average of $1.22 million per day over that span, according to Direxion data.


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