Energy Rebound Sparks Leveraged ETF Action

The moribund energy sector is this year's worst performer in the S&P 500, but that did not stop some laggards-to-leaders action last week, as some energy exchange-traded funds fast and furiously rebounded.

Last week, five of the 10 best-performing non-leveraged ETFs were equity-based energy funds with each of those five posting one-week gains well into the double digits. As is often the case when a beaten up sector rallies hard and fast in a small timeframe, the corresponding leveraged ETFs joined the party in significant fashion.

GUSH Quite Literally Gushes, Climbing 38 Percent

That was particularly true of the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH.

Related Link: Someone Is Nibbling At Oil Services ETFs

Even with last Friday's 4.4 percent slide, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares climbed a whopping 38.3 percent for the week. Entering Friday, the newly minted GUSH was the second-best performer among Direxion's triple-leveraged bull funds on a month-to-date basis, trailing only the Direxion Daily Natural Gas R Bull 2X ETF GASL.

GUSH And SPDR's XOP

As a result, GUSH, the triple-leveraged answer to the volatile and widely followed SPDR S&P Oil & Gas Explore & Prod. (ETF) XOP, is seeing an uptick in trading activity. For the five-day period ending October 5, GUSH's average daily volume was nearly 78 percent above the trailing 20-day average, according to Direxion data. Last Friday, GUSH's volume was “just” 50 percent above average.

Month-to-date, investors have poured over $276 million into XOP, potentially a good sign for GUSH. Still, investors should know what they are getting with either ETF. XOP is home to 67 stocks with a weighted average market capitalization of $17.2 billion. However, many of the ETF's holdings are mid- and small-caps, corners of the energy sector that have been savagely repudiated.

Not surprisingly, that makes GUSH a volatile play on a volatile market segment. Over the past month, GUSH's performance relative to triple its underlying index's returns has been plus almost 7 percent. Conversely, GUSH's bearish cousin, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP has delivered returns that lag triple the inverse performance of its index by 15.5 percent, according to Direxion data.

Looking At DRIP

After an intense rally in short period and little changed in oil's supply outlook, DRIP could be the play to consider in the near term.

“Demand for crude will fall due to regular seasonal refinery maintenance taking place in a few weeks,” said Direxion in a recent note.

“After President Obama’s nuclear deal with Tehran which included lifting sanctions, Iranian crude is expected to add to the flood of black gold.”