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Once Again, It's Time For These Leveraged ETFs

ETF Professor

The second quarter is still in its nascent stages, but that also means first-quarter earnings season will be soon arriving.

That also means investors will soon be treated to a deluge of earnings reports from the financial services sector.

What Happened

Even with the benefit of four interest rate hikes last year, financial services was one of 2018's worst-performing sectors. The group is bouncing back to start 2019, meaning the imminent earnings avalanche could test or lift financial services stocks and exchange-traded funds (ETFs).

For active traders, opportunity could be knocking with the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ).

Why It's Important

The bullish FAS attempts to deliver triple the daily returns of the Russell 1000 Financial Services Index while the bearish FAZ seeks daily returns that are triple the inverse performance of that index.

A potential point in favor of FAZ is lower earnings expectations across all S&P 500 sectors.

“On December 31, the estimated earnings growth rate for Q1 2019 was 2.9%. All eleven sectors have lower growth rates today (compared to December 31) due to downward revisions to EPS estimates,” according to Direxion.

View more earnings on FAS

Traders will not have to wait long to test the earnings potency of FAS and FAZ. Starting the week of April 8, nearly 13 percent of the Russell 1000 Financial Services Index steps into the earnings confessional. The next week, that number jumps to nearly 23 percent.

Traders that do not deploy FAS or FAZ over those two weeks will get another chance during the last two weeks of April when almost 53 percent of the Russell 1000 Financial Services Index reports first-quarter results.

What's Next

There are some inklings that traders are beginning to prepare for financial services earnings. For the five days ending April 1, the bullish FAS saw inflows of $18.41 million, good for the seventh-best total among all Direxion leveraged ETFs. Conversely, traders yanked $8.39 million from the bearish FAZ during that period, according to issuer data.

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