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Big Moves In Leveraged Biotech ETFs

Leveraged biotechnology exchange traded funds (ETFs) are known to make big moves, but sometimes those moves are not always about price action.

What Happened

Entering Monday, the Direxion Daily S&P Biotech Bull 3X Shares (NYSE: LABU) was up nearly 11 percent month-to-date, making it one of the best-performing bullish leveraged ETFs in Direxion's stable.

Conversely, the Direxion Daily S&P Biotech Bear 3X Shares (NYSE: LABD) entered Monday with an April loss of 10.71 percent, putting the bearish biotech fund among the bottom 10 of Direxion's inverse ETFs on a month-to-date basis.

The bullish LABU attempts to deliver triple the daily returns of the S&P Biotechnology Select Industry Index (SPSIBITR) while the bearish LABD looks to deliver triple the daily inverse returns of that index.

Why It's Important

LABU has nearly doubled on a year-to-date basis, but indicating that some traders may be taking profits in the leveraged fund, LABU slipped 2.13 percent while its bearish counterpart, LABD, jumped 2.12 percent.

On Thursday, April 4th, fund flow activity in LABU and LABD could have been seen as a sign of profit taking in the former. Traders pulled $39.79 million from the bullish LABU that day while adding $14.81 million to the bearish LABD, according to Direxion data.

Still, one day does not make or break a trend, and the flows trend as it pertains to leveraged biotechnology ETFs has been strongly in favor of LABU. For the 10 days ended April 5, LABU saw inflows of $47.76 million, good for the second-best total among all leveraged Direxion ETFs. Traders pulled $8.89 million from LABD during that period, good for the ninth-highest outflows total among Direxion's leveraged ETFs over that span.

What's Next

What may be concerning for traders tempting fate with the bearing LABD is that the S&P Biotechnology Select Industry Index is up almost 30 percent this year and needs to add 8.25 percent to reclaim its 52-week high. If the S&P Biotechnology Select Industry Index cobbles that 8.25 percent together quickly, the near-term outlook for LABD likely takes a big hit.

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