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Direxion's Opportunities in Beaten-Up Sectors

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Direxion's Opportunities in Beaten-Up Sectors PART 1 OF 1

Direxion’s Opportunities in Beaten-Up Sectors

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Some sectors have gotten downright spooky

As we move into the season of Pumpkin Spice Lattes, many sectors in the market have given investors more treats than tricks this year. The NASDAQ is up a solid 23% this year while even the once-downbeat oil market has picked up to rally over 24% since June.  So, overall, investors are probably feeling pretty good about this year (those who have been long). But there are some sectors worth noting for how they’ve lagged—especially the ones that lagged recently.

We’ll take a look at some of these sectors and see if some could pull a Frankenstein and come back to life. Sector directions matter now more than ever with so many assets trading at the very tippy-top of recent ranges or even all-time highs. Some of these downtrodden sectors could help investors stay at the top through year-end and into next year. The sectors we’ll be looking at are gold miners, natural gas, Treasurys, and Mexico. Boo!

Are gold mines haunted?
Gold has had a solid year so far, up 13.5% through mid-October. And though it peaked in early September at over $1,350 per ounce, it had a quick drop back to $1,261 in early October only to bounce back over $1,300 in mid-October. But NUGT, the 3X Bull Gold Miners ETF from Direxion, only bounced 3.9% while gold itself bounced 3.1%. Typically, we see a much higher correlation with gold and the miners—and thus NUGT.

So why the creepy divergence? It could be that investors in the actual mining companies don’t see a rebound in earnings with the pop in gold. The mining companies don’t show a lot of growth in 2018 estimates at this point. Or investors may believe gold is due for another fall and the mining companies just never registered the move. Or it could be just a lag. Whichever answer you believe, Direxion has you covered with NUGT (3x Bull Gold Miners) or DUST (3x Bear Gold Miners).

Direxion&#8217;s Opportunities in Beaten-Up Sectors

 

Source: Bloomberg. Past performance does not guarantee future results.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance, please visit direxioninvestments.com

It was a dark, dreary October night… Wait. Isn’t that good for natural gas?
If, in real estate, everything is “location, location, location,” then with natural gas investing, everything is “weather, weather, weather.” Of course, the price of natural gas is really a supply and demand game, but weather so often determines price action.

On the supply side, the Baker Hughes rig count for natural gas has been relatively flat since mid-year. It now stands at 185. Back in 2008, that number was well over 1,500. Plus, although President Trump has been making it easier for coal to succeed, many utility factories are already fitted for a certain amount of coal versus natural gas, so any changes would be on the margin.

On the supply-and-demand balance front, the current inventory stands a 3,748 million cubic feet (MCF), down 153 MCF from last year and -0.2% from the five-year average. Most of the time, the “fill season”—when natural gas manufacturers are filling up pipelines—ends around the first week of November and the “drain” begins. This year, inventories, as we noted above, are in better shape than last year. Last year, natural gas dropped precipitously to almost $2.50 before rallying all the way to $4.00 after fill season ended as we sit with natural gas at $3.00, down 19% for the year. Will that happen again? Only Mother Nature knows, but GASL (3x Bull) Natural Gas and GASX (3x Bear) Natural Gas can help as you consult your farmer’s almanac.

Direxion&#8217;s Opportunities in Beaten-Up Sectors

Past performance does not guarantee future results.

Treasurys waning
Since early September, US ten-year and longer-dated paper has been falling. Rates for the US government ten-year bond jumped from 2.04% on September 7 all the way to 2.36% on October 10. The move in rates is probably threefold. First, the move has a lot to do with Republicans’ proposed tax plan that massively cuts corporate tax rates and greatly benefits high earners. Enthusiasm for the plan sent rates up as investors expected higher growth and inflation going forward. Second, the Fed continues to talk up inflation and rates.  Third, economic and inflation data have improved in the September–October timeline. Due to overall higher expectations for growth and inflation, rates rose and Treasurys dropped. Note that oil’s recent rise also helps inflation expectations grow. Direxion’s TYD (3x 7-10 Year Bull) Treasury shares have dropped 7% in that same period before a slight bounce back.

So will oil stay up? Will the tax plan go through? Is growth really on an upward trajectory? Either way, Direxion has your back with TYO (3x 7-10 Year Bear) or TYD (3x 7-10 Year Bull) Treasury shares.

Direxion&#8217;s Opportunities in Beaten-Up Sectors

Source: Bloomberg. Past performance does not guarantee future results.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance, please visit direxioninvestments.com

Mexico’s Day of the Dead may remember recent stock market performance

For over a year now, Mexico has faced criticism from Trump for various reasons. He still wants to build his well between the United States and Mexico. But for most of the year, the Mexican stock market rallied with the rest of global markets. In July, the Mexbol rallied over 13% for the year. But since that peak, it has fallen 4%, with the average stock falling even more. Recent woes may have centered on the Trump administration’s demands from Mexico in NAFTA renegotiations—or they may just reflect a slower economy. Direxion’s MEXX (3x Bull) Mexico tracks the performance of all market caps within the Mexican stock market and is a bit more concentrated. The MSCI Mexico IMI 25/50 Index, the basis for the MEXX, is down 10% since July, so the MEXX is down 30%. If the dead do rise, they’ll have a long way up.

Direxion&#8217;s Opportunities in Beaten-Up Sectors

Source: Bloomberg. Past performance does not guarantee future results.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance, please visit direxioninvestments.com

Zombie assets hope to return from the dead
As with most timeframes in the market, the laggards are a mix of surprising and obvious names (in hindsight, of course). This October, they stand out a little more than usual since so many asset classes are up this year. But they’re also down for their own reasons—not different versions of the same reason. So check over your shoulder when you pass a graveyard to see if assets as varied as natural gas, gold miners, Treasurys, and Mexico can rise from the dead and turn investors’ fright to delight. In any case, Direxion can help investors achieve their goals with a range of leveraged ETF products.

Direxion&#8217;s Opportunities in Beaten-Up Sectors

Risks:

An investor should consider the investment objectives, risks, charges, and expenses of Shares carefully before investing. The prospectus and summary prospectus contain this and other information about Shares. To obtain a prospectus or summary prospectus please visit www.direxioninvestments.com/regulatory-documents. The prospectus and summary prospectus should be read carefully before investing.

There is no guarantee that the funds will achieve their objectives. The Leveraged and Inverse ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking Daily leveraged investment results and intend to actively monitor and manage their investments.   Investing in the Funds may be more volatile than investing in broadly diversified funds. The use of leverage by a fund means the Funds are riskier than alternatives which do not use leverage.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in securities of a Fund’s underlying index, for the Bull Funds, Daily Index Correlation Risk and Other Investment Companies (including ETFs) Risk, and for the Bear Funds, Daily Inverse Index Correlation Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

 

Distributor: Foreside Funds Services, LLC.

 

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