Sector Crosscurrents Drive Potential Opportunities In Direxion's Tech Bull And Bear 3X ETFs

Thanks to profound advancements such as artificial intelligence and cloud computing, leading tech enterprises such as Nvidia Corp NVDA, Microsoft Corp MSFT and Broadcom Inc AVGO have witnessed remarkable growth in recent years. Even better for their proponents, evidence exists that the northbound ride may continue unabated.

Broadly speaking, innovations such as generative AI can spark a radical acceleration in productivity. Last year, a report by Cognizant Impact revealed that machine intelligence could boost the U.S. economy to the tune of $1 trillion within the next ten years. Granted, this development entails significant social upheaval. Nevertheless, AI could propel a new phase of unprecedented growth.

In addition, companies not primarily known as AI powerhouses are rapidly adopting next-generation solutions. Earlier this year, Accenture plc ACN noted in its research report that society is embarking on a new era of AI-driven digitization. Under this framework, machines continuously learn and drive greater autonomy across organizations.

While the promises of tomorrow capture the imagination, headwinds have also materialized that cast some doubt on the sustainability of bullishness. Perhaps most notably, the geopolitical realm represents a key sticking point for even the biggest tech powerhouses. For example, Nvidia stock has gotten off to a slow start in the new year due to the threat of sanctions tied to AI chip exports to China.

Beyond the political implications of the technology itself, tensions have also sprouted over access to rare earth elements (REEs) and other key industrial commodities. Given the unique properties of REEs, supply chain disruptions can create chaos for myriad tech stocks downstream.

The Direxion ETFs: To put it simply, traders on both ends of the aisle may have reason to target the tech industry. For a convenient mechanism of speculation, they may consider leveraged exchange-traded funds. Among the optimists, the Direxion Daily Technology Bull 3X Shares ETF TECL may resonate. With exposure to top names like NVDA and MSFT but with the power of 3X leverage, traders can potentially scalp big gains quickly.

On the other end of the spectrum, the Direxion Daily Technology Bear 3X Shares ETF TECS delivers 300% of the inverse performance of the underlying Technology Select Sector Index. Essentially, exposure to TECS is similar to trading put options but without the complexity. With either the TECL or TECS, investors can buy and trade these ETF units similar to a publicly traded security.

Although the everyday convenience is an obvious draw for these specialized financial products, investors should be aware that leveraged ETFs should only be held for periods lasting no longer than one day. Otherwise, the daily compounding of volatility could lead to positional decay.

The TECL ETF: While the Direxion Daily Technology Bull 3X fund has gotten off to a slow start to 2025, over the past 52 weeks, TECL has gained almost 34%.

• Currently, the bulls are attempting to secure a baseline at the $88 level, which effectively bifurcates support and resistance zones.
• The most immediate technical target is the $90 level. Once that's secured, the next obvious target is the psychologically critical $100 milestone price.

The TECS ETF: Unlike its bullish counterpart, the Direxion Daily Technology Bear 3X fund managed to gain over 2% this year. However, over the trailing one-year period, it lost more than 51% of value.

• While the narrative for TECS has undoubtedly been ugly, a return of over 10% in the past month suggests a sentiment reversal is coming.
• The first order of business is to establish a high level of horizontal support to arrest the earlier downtrend. With that out of the way, the next target would be $50, followed by $55.

Featured photo by Pete Linforth on Pixabay.

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