Wild Ride For Leveraged Biotech ETFs Continues

A week after presidential candidate Hillary Clinton made scathing comments about price gouging by the pharmaceuticals industry, biotechnology stocks and exchange-traded funds remain at the epicenter of what has rapidly become a precariously positioned healthcare sector.

However, some bearish leveraged biotech ETFs, namely the Direxion Daily S&P Biotech Bear 3X Shares (NYSE:LABD), are enjoying life in the fast lane.

LABD's Recent Run

After surging more than 30 percent, LABD is up another 15.7 percent at this writing Monday on volume that is already more than double the daily average.

LABD underscores how quickly things can change for triple-leveraged ETFs and why the disclaimer that only active traders planning to hold these funds for just a few days should use these products, not buy-and-hold investors, is so often repeated.

LABD is now up more than 48 percent over the past five trading days, but the ETF entered Monday as Direxion's second-best leveraged ETF on a month-to-date basis, with a gain of 18.6 percent, according to issuer data.

If Disclaimer Awareness Is Minded, More Opportunity May Be Ahead

For traders willing to acknowledge that disclaimer, there appears to be more near-term opportunity with the likes of LABD due to professional investors' long positioning in the healthcare sector and biotech's elevated weights in major U.S. equity benchmarks.

Friday was the biggest 1 day underperformance of the healthcare sector since April 2009. Currently, Biotech net exposures are still near/at all-time highs since 2010. Following sizable net buying of HC for 9 consecutive months, the pace has slowed materially in Sep. HC net flows have been mixed over the past few days although volumes have remained elevated, according to a Morgan Stanley note out Monday.

Although there are some idiosyncratic dynamics driving Biotech, the group was a lead indicator in the growth sell-off in March of 2014. Biotech represents 12 percent of the Nasdaq and 3.68 percent of the S&P 500, which is elevated versus history. It is also worth noting that Biotech vs E&Ps has been correlated to Long/Short 12M Momentum and there is a bit of disconnect there currently.

In layman's terms, if you see the Nasdaq and ETFs like the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) declining these days, there is a fair chance biotech is the culprit.

Turnover In Healthcare Linked To LABD Action

Morgan Stanley's assessment of increased turnover in the healthcare space is confirmed by the action in LABD. Last week, the ETF's five-day volume was nearly 46 percent above the trailing 20-day average, according to Direxion data. Only four Direxion leveraged ETFs saw bigger increases, including LABD's bullish cousin, the Direxion Daily S&P Biotech Bull 3X Shares (NYSE:LABU), which saw its five-day volume climb 58 percent above the trailing 20-day average.

Of course, LABD is not giving away free lunches. Over the past month, among Direxion's leveraged bearish ETFs, only the Direxion Daily Junior Gold Miners Index Bear 3X Shares (Direxion Shares Exchange Traded Fund Trust (NYSE:JDST)) has been more volatile.

Image Credit: Public Domain