It is a scenario that is frequently seen with leveraged exchange traded funds. Traders pile into whichever fund that is a member of bullish/bearish pair that gets hammered on a particular day with the hope that that ETF will rally the following day, making for a profitable trade.
A hypothetical example would be big inflows to Direxion Daily Financial Bull 3X Shares (FAS) on a day in which the Direxion Daily Financial Bear 3X Shares (FAZ) . A real world example involving leveraged gold miners ETFs is, once again, playing out and the results are not pretty.
The Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) and the Direxion Daily Gold Miners Bull 3X Shares (NUGT) are off 21.4% and 23%, respectively, at this writing. Those losses are punishing new entrants to the ETFs, of which there were plenty last Friday. [Trouble for Gold Miners ETFs is Coming]
Although NUGT and JNUG were drubbed last Friday, traders poured a combined $56 million into the funds, according to Direxion data. None of Direxion’s triple-leveraged ETFs saw larger inflows than the $39.1 million hauled in by NUGT last Friday. Only NUGT and the Direxion Daily S&P 500 Bear 3x Shares (SPXS) took in more new cash than the $16.9 million added by JNUG.
Entering Monday, JNUG and NUGT were Direxion’s second- and third-worst performing triple-leveraged bullish ETFs this month. Only the Direxion Daily Natural Gas Related Bull 3X (GASL) had been worse. [A Warmer View of Leveraged ETFs]
Struggling to hold the $4 area, NUGT looks like a viable candidate for a reverse split, an offense committed by JNUG in December. [Finally, a Reverse Split for JNUG]
JNUG underwent a 1-for-10 reverse split on Dec. 23, but the ETF has tumbled 76.2% over the past six months.
Making matters worse when it comes to the triple-leveraged gold miners ETFs is what some traders are dumping to get involved with JNUG and NUGT. For example, $5.3 million was yanked from the Direxion Daily Gold Miners Bear 3X Shares (DUST) last Friday, a total exceed by just two of Direxion’s other leveraged bear funds, according to issuer data.
DUST and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST) are up an average of 97% over the past month, but since the start of July, traders have pulled a combined $84 million from those ETFs.
Direxion Daily Gold Miners Bear 3X Shares