Market Overview

Bank Bears Beckon Again

Bank Bears Beckon Again

The financial services sector and the related exchange traded funds (ETFs) are once again struggling. Last week, the Financial Select Sector Index fell almost 5 percent as the sector notched its worst weekly performance in about eight years.

Yes, this is a movie investors have seen before. As recently as last year, in fact.

What Happened

Weakness in banks and financial services stocks could stoke traders' interest in inverse leveraged ETFs, such as the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ). FAZ attempts to deliver triple the daily inverse performance of the Russell 1000 Financial Services Index.

Entering Monday, FAZ sported a month-to-date gain of 5.29 percent, making it the fourth-best performer among Direxion's leveraged bear ETFs, according to issuer data.

Why It's Important

Bolstering the near-term case for bearish financial ETFs such as FAZ is the sector's deteriorating technical heal.
“Bank stocks are now in a bear market, having fallen more than 20 percent from a June peak, while the financials tumbled into a correction with losses of 13 percent from their 52-week highs,” according to CNBC.

Along with diversified financial ETFs, some industry plays are weakening. For example, the S&P Regional Banks Select Industry Index slid almost 10 percent, putting it more than 25 percent below its 52-week high and renewing its bear market status.

That's good news for the Direxion Daily Regional Banks Bear 3X Shares (NYSE: WDRW). WDRW, which tries to deliver triple the daily inverse performance of the S&P Regional Banks Select Industry Index, entered Monday with a March gain of 45.09 percent, making it the best-performing leveraged bear ETF in the Direxion stable.

What's Next

There are some signs that aggressive traders are starting to embrace the bearish bank trade. For the five days ended Friday, March 22nd, traders added $5.07 million to FAZ, putting the bearish financial ETF among the top 10 Direxion ETFs for inflows over that period.

If the S&P Regional Banks Select Industry Index takes out its December lows around $45, traders could be compelled to visit the bearish WDRW.

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