Recovery Amidst Financial Turbulence
In the realm of financial giants, JPMorgan Chase & Co (JPM) and Goldman Sachs Group (GS) stand tall amidst a bumpy recovery resiliently following a sharp correction in late July. The Bank of Japan’s decision to raise its benchmark interest rate triggered a significant market selloff, largely attributed to the unwinding of the popular yen carry trade.
Yet, the BOJ’s subsequent commitment to refrain from raising rates during periods of market upheaval has notably pacified jittery investors. Moreover, robust U.S. retail sales surpassing economists’ expectations hinted at a more tenacious consumer base than initially projected, bolstering confidence in payment card service providers such as Visa (V) and Mastercard (MA).
Focus on the Federal Reserve
All eyes are now fixated on the Federal Reserve. Analysts argue that the central bank is equipped with sufficient evidence to support rate cuts. Key economic indicators, particularly the Producer Price Index and the Consumer Price Index, revealed that inflationary trends are less rapid than previously anticipated. This evolving disinflationary environment sets the stage for a dovish pivot in the Fed’s monetary policy.
However, the market’s path ahead may not be seamless. Evidenced by Benzinga’s Jeannine Mancini earlier this year, the current economic dichotomy is striking. Despite a seemingly robust economy marked by vigorous consumer spending and the creation of 13 million jobs since President Joe Biden’s tenure began, prevailing public sentiment remains predominantly pessimistic.
Exploring Speculative Opportunities
Amidst these uncertainties, the financial landscape beckons speculative opportunities, with Direxion’s leveraged exchange-traded funds emerging as focal points. The Direxion Daily Financial Bull 3x Shares (FAS) delivers 300% of the performance of the Financial Select Sector Index. Conversely, bearish investors can delve into the Direxion Daily Financial Bear 3x Shares (FAZ), offering 300% of the inverse performance of the same index.
These FAS and FAZ funds present the potential for swift profits without wading into the complexities of the options market. Investors can acquire these leveraged ETFs akin to standard publicly traded securities. Yet, a crucial caveat remains: these leveraged funds should not be held beyond a single day to mitigate the daily compounding effect that could lead to significant value erosion.
Chart Analysis
The FAS Chart: After a sharp decline in late July, the FAS ETF swiftly regained its technical footing. In the year to date, the leveraged bull fund has surged over 40%, showcasing remarkable resilience.
- Notably, the Daily Financial Bull 3X managed to steer clear of its 200-day moving average during the downturn, swiftly rebounding above its 50 DMA.
- Caution warrants attention to the diminishing volume levels post the August 5 session, where rising volume traditionally corroborates rising prices.
The FAZ Chart: Following a notable upsurge during the late July and early August tumult, the FAZ ETF has recently witnessed a noticeable decline in momentum. Year-to-date, the leveraged inverse fund has retreated by nearly 35%.
- During the market correction, the FAZ demonstrated strength as it breached a distinct horizontal support line denoted by the $10.40 mark. However, it currently struggles below $9.
- Looking ahead, a pivotal juncture will be the inverse fund’s ability to reclaim the $9 level and progress towards the psychologically significant $10 threshold to avert technical setbacks.
