The Time Could Be Right For This Biotech ETF

Biotechnology stocks and exchange traded funds have been slumping since last week's midterm elections and that could be an ominous sign.

On Monday, the S&P Biotechnology Select Industry Index fell 3.59 percent on volume that was well above the daily average, extending what are becoming significant monthly and quarterly losses.

What Happened

Ongoing weakness for the equal-weight S&P Biotechnology Select Industry Index benefits the Direxion Daily S&P Biotech Bear 3X Shares LABD. LABD, one of the most heavily traded leveraged biotechnology ETFs, aims to deliver triple the daily inverse returns of the S&P Biotechnology Select Industry Index.

Entering Monday, LABD was already on fire, gaining just over 11 percent last week. Yesterday, the bearish biotech ETF continued its bullish ways, surging 12 percent on volume that was more than double its daily average.

Why It's Important

As of Nov. 9, LABD was one of the worst-performing leveraged bearish funds in Direxion's stable on a month-to-date basis, but Monday's performance lifts LABD to among the issuer's better-performing bearish offerings this month.

An unusual post-election phenomenon could be at play and that could be good news for LABD.

“The SPDR S&P Biotech ETF (XBI) fared the worst after the Democrats took control of the House 12 years ago,” according to Schaeffer’s Investment Research. “The fund was roughly flat the week and month after the election, but eventually slumped to a 9.6% loss through the end of that year. As it stands now, XBI recently broke below support at its year-to-date breakeven level just below $85, and now appears to be fighting resistance at this price point.”

The SPDR S&P Biotech ETF XBI tracks the S&P Biotechnology Select Industry Index.

What's Next

Traders will need to reverse course if they want to take advantage of more potential near-term upside in LABD. Over the past month, the leveraged biotechnology ETF is averaging just over $1 million in daily outflows, according to issuer data.

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