Split Sentiments May Drive Huge Interest In Direxion's SPXL And SPXS Leveraged ETFs

Up until earlier Wednesday morning, bullish investors had every reason for fueled optimism. Yesterday, big-box retailing giant Walmart Inc WMT delivered strong third-quarter results, posting adjusted earnings per share of 58 cents. This easily eclipsed analysts' consensus view of 53 cents. In addition, revenue hit $169.59 billion, up 5.5% on a year-over-year basis or up 6.2% on a constant-currency basis. This print also beat analysts' estimate of $167.72 billion.

Notably, as Benzinga editor Lekha Gupta pointed out, "Global eCommerce sales rose 27%, driven by store-fulfilled pickup and delivery as well as marketplace growth. Global advertising business grew 28%, including 26% for Walmart Connect in the U.S." As well, the retailer has attracted a growing shopper base of households earning a six-figure income.

Walmart CEO Doug McMillon stated that, "People come to us to shop as a primary destination in many instances and then they give us feedback across categories. And if you look at our offer in food and consumables, our shares are pretty high and consistent relative to some of the things we see in general merchandise."

Unfortunately, not every economic bellwether points in an encouraging direction. While investors celebrated the implied holiday cheer of Walmart's results, they got a reality check with rival Target Corporation TGT. During the midweek session's premarket hours, TGT stock stumbled due to a glaring earnings miss.

The brick-and-mortar behemoth reported adjusted Q3 EPS of $1.85, falling well short of the consensus view of $2.30. In addition, while total revenue for the quarter reached $25.67 billion — representing a 1.1% lift from the year-go period — this figure missed the expectation of $25.90 billion.

Finally, what helped drive investors to the exits was the reduced outlook for the current fiscal year. Management is now forecasting adjusted EPS to land between $8.30 and $8.90, down from the previous guidance of $9 to $9.70. The revised guidance is also below the consensus estimate of $9.55.

The Direxion ETFs: Although the split sentiments may be confusing Wall Street, this dynamic presents a compelling showcase for Direxion's leveraged exchange-traded funds. For those who remain optimistic, investors may consider acquiring units of Direxion Daily S&P 500 Bull 3X Shares SPXL. On the other hand, speculators who feel that a turn for the worst may be imminent may look at Direxion Daily S&P 500 Bear 3X Shares SPXS.

Per the financial service provider's website, the SPXL and SPXS funds seek the daily investment results (before fees and expenses) of 300% (or an inverse 300% in the case of SPXS) of the performance of the S&P 500 index. It's important to note, though, that investors must not hold these leveraged funds for periods greater than one day. Doing so may result in value erosion due to the daily compounding of leveraged returns.

The SPXL ETF: Predictably, the SPXL fund has been a strong performer, gaining almost 69% since the beginning of January. However, it's also possible that some cracks may be forming in the armor.

• While the SPXL is above its 50-day and 200-day moving averages, it has recently been straddling its 20-day exponential moving average, indicating near-term challenges.
• Although the SPXL has been on a blistering run, there are signs of a slowdown. In the past six months, the ETF gained just over 26%. In the past month, it has moved up less than 1%.

The SPXS ETF: On the other end of the spectrum, SPXS has struggled under the weight of the S&P 500 bull market, losing nearly 47% since the start of the year. Still, a bounce back may be on the horizon.

• At the moment, SPXS is below the 20 EMA, 50 DMA and 200 DMA. However, recent momentum implies a turnaround is possible.
• Since mid-October, a discernible increase in acquisitive volume is evident, suggesting greater confidence in the bearish thesis.

Featured photo by Albrecht Fietz from Pixabay.

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