While The S&P 500 Consolidates Over Key Indicator, This 3X Leveraged ETF Looks Set To Blast Through It

Direxion Daily S&P 500 Bull 3X SPXL was popping up almost 2% higher on Tuesday after a bearish day on Monday saw the ETF close down 3.96%. The ETF recently broke up from a cup-and-handle pattern, which Benzinga called out was likely to happen on Jan. 16.

SPXL is a triple-leveraged fund that offers 300% daily leverage to bullish movements across the S&P 500 index.

The ETF closely followed the patterns of the S&P 500, which had been consolidating above the 200-day simple moving average (SMA) since it crossed above the indicator on Jan. 23. SPXL, although forming similar patterns, was consolidating under the 200-day SMA, and could break above the area over the coming trading days.

SPXL’s bullish consolidation — paired with a solid and confirmed uptrend — could provide a solid trade for traders with a high risk-reward appetite.

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It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to long-term investments by experienced traders. Leveraged ETFs should never be used by an investor with a buy-and-hold strategy or those who have low-risk appetites.

Traders who are bearish on the S&P 500 can track the Direxion Daily S&P 500 Bear 3X SPXS.

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The SPXL Chart: SPXL completed a cup-and-handle pattern on Jan. 25 and broke up from the formation the following day. On Jan. 27, the ETF tagged the 200-day SMA but rejected the area as resistance, which caused SPXL to enter into consolidation.

• The consolidation within the handle pattern, the break up from the formation and the consolidation that has taken place under the 200-day SMA on Monday and Tuesday has caused the ETF to settle into a possible bull flag pattern on the daily chart. If the pattern is recognized, the measured move is about 15%, which suggests SPXL could eventually reach about $81.
• If SPXL breaks up from the bull flag pattern and regains the 200-day SMA, short-term traders could see a big bullish move in the ETF. If SPXL continues to reject the 200-day SMA or breaks down below the eight-day exponential moving average, the bull flag will be negated and a downtrend could occur.
• SPXL has resistance above at $71.96 and $75.74 and support below at $67.66 and $64.64.

Photo: eamesBot via Shutterstock