Once strong financial services exchange traded funds are flailing and that could open the door for risk-tolerant traders to profit on the downside with inverse and leveraged ETFs.
Although financial services stocks and ETFs are usually solid performers in the first half of April, that has not been the case this year as the Financial Select Sector SPDR (XLF) , the largest bank ETF, is off 1.7% since the start of this month. The Vanguard Financials ETF (VFH) has been slightly worse with an April decline of 1.9%. [Not the Month for Bank ETFs]
The SPDR S&P Bank ETF (KBE) has been an even more egregious offender, experiencing April showers to the tune of a 4.4% loss. Losses for the aforementioned ETFs come after financial services funds brought in $1.5 billion in new assets last month. [Bank ETFs Look to Regroup]
At least one technical analyst sees the potential for added downside for KBE.
“Two weeks ago, KBE sliced through key, intermediate-term support of its 50-day moving average on heavy volume, and has since been wedging higher on lighter than average volume,” notes Deron Wagner of Morpheus Trading Group.
Now trading 1.4% below its 20-day moving average, KBE could be a short if it makes its way back to that level, says Wagner.
Further deterioration in bank ETFs could mean opportunity is afoot with the Direxion Daily Financial Bear Shares (FAZ).
“If an ideal short entry develops, I would look to sell short KBE by buying FAZ, which has plenty of liquidity with an average of more than 7 million shared traded per day,” said Wagner.
FAZ tracks the Russell 1000 Financial Services Index, which is not KBE’s underlying index. Other inverse bank ETFs include the double-leveraged UltraShort Financials ProShares (SKF) and the non-leveraged Short Financials ProShares (SEF).
Direxion Daily Financial Bear Shares
Table Courtesy: Direxion
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.