Flight to Quality Can Push More Bullishness to This Leveraged ETF

The renewed volatility from the newly identified COVID-19 variant, Omicron, is causing a flight towards quality once again, which should benefit the Direxion Daily Technology Bull 3X ETF (TECL).

While technology is still a sector that can identify itself with the growth factor, quality has been its characteristic factor as of late, given its strength during the pandemic. A heavier reliance on technology is causing investors to pile into stocks like Apple, Microsoft, Amazon, and other big tech names that are expected to benefit from any potential COVID-19 restrictions.

“There’s a flight to quality with companies that you know will weather the storm, not go bankrupt, not have financial distress,” said Needham analyst Laura Martin.

With its triple leverage, TECL is certainly not for the weak of heart, but it’s been giving traders big gains this year, as it’s up almost 100% year-to-date. The fund seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Technology Select Sector Index.

TECL allocates the majority of its net assets in financial instruments, such as swap agreements and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index includes domestic companies from the technology sector with household names like Apple and Microsoft dominating the holdings.

Currently, TECL is trading well above its 50- and 200-day moving averages, portending to short-term as well as long-term strength, respectively. Its relative strength index (RSI) is under overbought levels, so more momentum could be ahead, especially if the Omicron variant forces more lockdown restrictions.

TECL Chart

Building Off Apple Strength

With close to 20% of its assets allocated towards Apple, TECL’s strength will depend on the iPhone maker’s sales. Given that it’s the holiday season, a strong retail showing should help Apple with more gains and subsequently benefit TECL.

Apple, however, will have to show that it can break out of its comfort zone and not sit on its laurels due to the success of the iPhone. New, innovative products will help ensure the company’s dominance in the consumer tech market.

“The biggest criticism of Apple for the last five years is no new products. When you look at the product pipeline, lots of excitement there, especially in the press today about how they’re going to introduce augmented reality glasses at the next WWDC in June,” Martin said.AAPL ChartFor more news, information, and strategy, visit the Leveraged & Inverse Channel.