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Earnings Bell Rings For These Leveraged ETFs

ETF Professor

Third-quarter earnings season kicks off in earnest this week and that means an imminent avalanche of earnings reports from the financial services sector.

The arrival of another earnings seasons also means the opportunity for active traders to engaged leveraged exchange traded funds (ETFs).

What Happened

When it comes to leveraged ETFs and the financial services, the kings are the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ).

The bullish FAS looks to deliver triple the daily returns of the Russell 1000 Financial Services Index while the bearish FAZ attempts to mirror triple the daily inverse returns of that benchmark.

That index allocates over 29 percent of its weight to bank stocks, a group that has been struggling this year even as the Federal Reserve has boosted interest rates three times. While the broader market is trading higher, the S&P Banks Select Industry Index is lower by nearly 1 percent year-to-date.

Why It's Important

FAS and FAZ are important over the near-term because a slew of financial services stocks report earnings over the two weeks starting Monday, Oct. 8. This week, over 16 percent of that index delivers third-quarter results, according to Direxion data. For the week ending Oct. 19, 24.74 percent of the components in that index report earnings.

“Total Q3 earnings for the S&P 500 Index are expected to be up 17.6% from the same period last year on +7.3% higher revenues,” said Direxion. “That would be the 6th time in the last 7 quarters of double-digit earnings growth.”

View more earnings on FAS

Data indicate volume in both FAS and FAZ has recently been ticking higher. For the week ended Oct. 5, volume in FAS was 37.19 percent above the trailing 20-day average while turnover in the bearish FAZ was 27.59 percent higher than the trailing 20-day average, according to Direxion data.

What's Next

The fourth quarter is still in its nascent stages, but last week, traders added $45.64 million to the bullish FAS while pulling $3.38 from the inverse leveraged FAZ.

In the third quarter, traders yanked $318.44 million from FAS while adding $28.66 million to FAZ.

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