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With The Holidays Here, Consumer ETFs Get Adventurous

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With The Holidays Here, Consumer ETFs Get Adventurous
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Just in time for the holiday shopping season, Direxion, one of the largest issuers of leveraged exchange traded funds, recently introduced four leveraged funds for the consumer discretionary and consumer staples sectors.

With the once high-flying consumer discretionary sector encountering some headwinds, a pair of Direxion's new ETFs bear watching.

What Happened

The aptly-tickered Direxion Daily Consumer Discretionary Bull 3X Shares (NYSE:WANT) and the Direxion Daily Consumer Discretionary Bear 3X Shares (NYSE:PASS) are the newest leveraged plays on the consumer discretionary sector.

The bullish WANT looks to deliver triple the daily returns of the Consumer Discretionary Select Sector Index (IXYTR) while the bearish PASS seeks to deliver triple the daily inverse returns of that benchmark. The index includes “media; retail (specialty, multi-line, internet & catalog); hotels, restaurants & leisure; textiles, apparel & luxury goods; household durables; automobiles; automobile components; distributors; leisure equipment & products; and diversified consumer services,” according to Direxion.

Why It's Important

The index PASS and WANT offer leveraged exposure to is heavy on Amazon.com Inc. (NASDAQ: AMZN). Shares of the e-commerce giant accounted for nearly 23 percent of that index when PASS and WANT debuted in late November.

Putting the bearish PASS in the spotlight is Amazon's fourth-quarter slide of more than 22 percent, putting the stock on pace for its worst fourth-quarter showing in a decade.

“Of course, houses, cars, and other big-ticket purchases are the real bellwethers of economic strength, and it’s likely that the nuance of that retail sales figure could be lost under the anticipated steep decline in auto sales,” said Direxion in a recent note.

What's Next

For the bearish PASS and the bullish WANT, price action will be determined by Amazon and overall consumer spending. On a technical basis, the funds' underlying index currently looks oversold.

“Prices have waned for the consumer discretionary sector, and it is currently trading below the 100-day simple moving average,” said Direxion. “If momentum returns to this space the next upside target for traders would be to establish a close above its 100D moving average. Upside targets can be magnified with WANT.”

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