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Trading The Jobs Report With Leveraged ETFs

ETF Professor

UPDATE: With employment data for March coming in weaker than expected—private and nonfarm payroll figures were will below estimates, though the unemployment rate ticked slightly lower as well—both TZA and TZA are seeing volatile trading action in Friday's session. True to their name, both funds reacted to the data in the market's opening minutes, with TNA rallying slightly and TZA selling off. As of writing, both are back near the opening print. 

The U.S. Department of Labor delivers the March employment report today before the open of U.S. markets. Following the ADP private sector employment report out earlier this week, which showed the addition of 263,000 non-farm private jobs last month, expectations are in place for a solid March employment picture. 

For active, risk-tolerant traders marquee economic reports, such as U.S. employment data, can present ideal opportunities for using leveraged exchange traded funds. Direxion, one of the largest issuers of leveraged ETFs, has a broad stable of funds ideally suited for trading events like the jobs report.

For example, the S&P 500 is up nearly 6 percent year-to-date, but has recently shown signs of lethargy and perhaps being “toppy.” A disappointing jobs report could spell opportunity with the Direxion Daily S&P 500 Bear 3X Shares (NYSE: SPXS). As its name implies, SPXS attempts to deliver triple the daily inverse returns of the S&P 500 so if the benchmark U.S. equity gauge slumps 1 percent today, SPXS should rise 3 percent. 

SPXS has a bullish counterpart, the Direxion Daily S&P 500 Bull 3X Shares (NYSE: SPXL). That ETF tries to deliver triple the daily returns of the S&P 500.

Small-cap stocks could be sensitive to today's jobs number. The asset class has disappointed this year with the widely followed Russell 2000 clinging to a year-to-date gain and with the S&P SmallCap 600 Index trading slightly lower.

The Direxion Daily Small Cap Bull (NYSE: TNA) is one of the most popular leveraged small-cap ETFs in the U.S. TNA attempts to deliver triple the daily returns of the Russell 2000. Traders have recently been fans of TNA. For the 30-day period ended April 5th, TNA averaged daily inflows of over $2.1 million, according to Direxion data. Among Direxion's leveraged bullish ETFs, only SPXL averaged larger inflows over that span. 

TNA's bearish counterpart is the Direxion Daily Small Cap Bear 3X Shares (NYSE: TZA). TZA seeks to deliver triple the daily inverse returns of the Russell 2000 so if that small-cap index falls 1 percent today, TZA should rise 3 percent.

Flows data suggest traders have recently been pulling money from TZA as the ETF has averaged daily outflows over the past month of more than $355,000, according to issuer data.

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