Market Overview

This Leveraged ETF Isn't Getting Enough Love

This Leveraged ETF Isn't Getting Enough Love

There are dozens of leveraged exchange-traded funds on the market, many of which address sectors and industries, but with so many choices, traders often overlook some good things.

What Happened

That is the plight being experienced by the Direxion Daily Homebuilders & Supplies Bull 3X Shares (NYSE: NAIL), the king of leveraged homebuilders ETFs. Designed to deliver triple the daily returns of the Dow Jones U.S. Select Home Construction Index (DJSHMBT), NAIL is probably in better shape at the moment than traders are giving it credit for,

While NAIL is up almost 18% over the past week, data indicate traders haven't been paying much attention to the fund, but there are plenty of reasons why they should be.

Why It's Important

Recent commentary from home improvement retailers are another point in favor of the near-term thesis for NAIL. While those are consumer cyclical stocks with some tariff sensitivity, broadly speaking, the setups in that group favor NAIL. Plus, interest rates are a big assist for homebuilders when those rates are declining.

“On Thursday, Jefferies analyst Sean Darby argued that while the housing picture 'has been overcast with unpredictable weather clouding the data,' there are reasons to be optimistic,” reports Barron's. “The average 30-year fixed mortgage rate had dropped to 3.6% from 4.94% in November, and more than half of conventional 30-year mortgage borrowers are in a position to refinance at current levels.”

On the back of those remarks, NAIL jumped 1.63% yesterday on volume that was about 50% above the daily average. Now, the leveraged homebuilders ETF resides just 4.49% below its 52-week high and if the fund can take out that level and then $60, it's off to the races.

What's Next

Home improvement retailers account for over 10% of NAIL's index and that's relevant in the current environment because those names can offer some, though not a complete, buffer against trade antics.

“While retail has been a tough sector to invest in this year, home improvement offers some measure of insulation from the threat of e-commerce,” according to Barron's. “It has been more resilient than categories such as apparel that have been plagued by worries about oversaturation and potential damage from the trade war with China. If housing data and interest rates continue to break in retailers’ favor, the rally could continue.”

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