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Loving LABU: A Leveraged Biotech ETF On A Torrid Pace

Thanks to some favorable news from the Food and Drug Administration (FDA) and more mergers and acquisitions activity, biotechnology stocks and exchange traded are shaking off their previously identified election year jitters to move higher this month.

Speaking of moving higher, there is the Direxion Daily S&P Biotech Bull 3X Shares (NYSE: LABU). After last week's 13% percent gain, LABU is up about 43 percent month-to-date, good for the best showing among Direxion's stable of leveraged bullish ETFs.

Like other leveraged ETFs, LABU is best used as a short-term trade. When the going is good LABU, over a few days, it can be a very rewarding trade, but as the biotechnology sector taught investors earlier this year, things can turn bad in a hurry and LABU can rapidly become a punishing trade.

LABU attempts to deliver triple the daily returns of the S&P Biotechnology Select Industry Index. Its bearish counterpart is the Direxion Daily S&P Biotech Bear 3X Shares (NYSE: LABD), which looks to deliver triple the daily inverse returns of that index.

Underscoring the point about volatility, only two Direxion leveraged bearish ETFs have shown more downside than LABD over the past month, according to issuer data.

“As of June 30, 2016, the companies included in the Index have a median market capitalization of $1.20 billion and an average market capitalization of $8.14 billion. The components of the Index and the percentages represented by certain industries in the Index may change over time,” according to Direxion.

Although LABU is already up almost 46 percent this month, the ETF remains appealing on a technical basis, indicating it could deliver more near-term upside for risk-tolerant traders.

LABU is currently in a short-term uptrend. The current price action is positive. LABU price is trending above 47 resistance level. The 7-day moving average is above the 20-day moving average, supporting a possible uptrend continuation from a technical perspective. We note that RSI is currently at 63.02, above generally accepted uptrend technical level of 50. The MACD is currently above the signal line and the zero line. A continual widening spread between MACD and the signal line continues to support the current technical trend,” notes Direxion.

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