Market Overview

Electoral Implications For Leveraged Tech ETF


Plenty of sectors are in electoral crosshairs this year, technology chief among them. The S&P 500's largest sector weight is a leadership group again in 2020, but there are implications for it come Election Day.

What Happened

Those implications make the Direxion Daily Technology Bull 3X Shares (NYSE: TECL) a credible post-election idea. TECL attempts to deliver triple the daily returns of the Technology Select Sector Index, a benchmark that's essentially an ode to Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) as that duo combine for more than 44% of the index's weight.

As has been widely documented, some titans of tech are drawing the ire of politicians on both sides of the aisle, but the conventional wisdom is that a victory by former Vice President Joe Biden would take some of the heat off the sector.

Why It's Important

That will probably prove to be true if Biden wins, but there are reasons to consider TECL, including intra-tech rotations.

“If you are long-duration technology – SaaS, payment processors, FAANG – you do not believe rotation is sustainable. Evidence of that view is best represented in the 8% bounce in the NASDAQ-100 Index (NDX) since the week of September 25,” writes Rareview Macro founder Neil Azous. “The opposing view is that cyclical technology, value names, and GARP stocks should benefit from a more balanced portfolio into the Presidential Election, especially if Biden wins. He is more likely to break up the monopoly names.”

Assuming Biden pursues the breaking up monopolies angle, TECL's bearish counterpart, the Direxion Daily Technology Bear 3X Shares (NYSE: TECS), could come into focus. However, that thesis probably doesn't account for Sen. Kamala Harris (D-CA), a friend of Silicon Valley, being Biden's running mate.

What's Next

Monopoly breaking is hard and even if President Trump scores the upset, there are no guarantees he'll have the political capital to wage anything more than verbal war against tech giants.

That is to say even if he does pull victory from the jaws of defeat, TECL should still shape up nicely after Election Day. Plus, there are more technical reasons that could be the case.

“Regarding the old generals – Oracle, Cisco, Intel, etc. – many of the charts are constructive,” said Azous.

Those names and other mature tech fare reside in TECL's underlying index.


Related Articles (TECL + TECS)

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Posted-In: Long Ideas News Sector ETFs Specialty ETFs Politics Tech Trading Ideas ETFs

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