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 (NYSEArca: FAS) on a day in which the Direxion Daily Financial Bear 3X Shares (NYSEArca: 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 (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: 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 (NYSEArca: 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 (NYSEArca: 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 (NYSEArca: 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 (NYSEArca: 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