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Traders Get It Right (Sort Of) With Leveraged Biotech ETFs

There are 68 exchange traded funds down at least 20 percent year-to-date. Underscoring the weakness in the previously high-flying biotechnology sector, 10 of those 68 ETFs are biotech funds.

In other words, these should be go-go for inverse biotechnology ETFs such as the Direxion Daily S&P Biotech Bear 3X Shares (NYSE: LABD). LABD attempts to deliver triple the daily inverse performance of the S&P Biotechnology Select Industry Index, the same benchmark tracked by the SPDR S&P Biotechnology ETF (NYSE: XBI). XBI is the third-largest biotech ETF by assets.

As has been previously noted in this space, traders' bullish biases often get in the way of success with leveraged ETFs. Arguably, leveraged ETFs such as LABD and its bullish counterpart, the Direxion Daily Biotech Bull 3X Shares (NYSE: LABU), offer case studies in traders' bullish wiring. No matter how much a security falls, some market participants insist on being long and seeing value where there probably is not any.

Related Link: Biotechs Are Ripping Following IPAB Ruling

Election year rhetoric is plaguing the broader healthcare sector, but has weighed particularly heavy on biotech stocks and ETFs. Democrat Hillary Clinton has been an obvious thorn in the sides of healthcare investors, proving that markets are speaking and that the advice that a Clinton victory is good for the healthcare is quite simply, awful advice.

To be fair, Republican frontrunner Donald Trump has levied his own harsh rhetoric against high drug prices, so this election season is becoming increasingly tricky to navigate for healthcare investors. That is why these are becoming go-go days for the aforementioned LABD.

With Tuesday's 5 percent gain on above average volume, LABD is up nearly 24 percent this month, making it Direxion's best-performing inverse leveraged ETFs on a month-to-date basis. Traders appear to be acknowledging as much.

As LABD is Direxion's best leveraged bear ETF this month, it stands to reason that LABU be the issuer's worst-performing leveraged bull ETF in June. It is. More good news: Traders are acknowledging this, too.

Over the past 30 days, LABU has averaged daily outflows of over $2.9 million, according to Direxion data. Conversely, LABD's average daily inflows over that period are close to $60,000. That doesn't sound like much, but hey, it's a step in the right direction when it comes to traders getting over the bullish bias.

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