A Bad Sign For Biotech Bulls

Actually, there are several warning signs for biotechnology bulls, but the focus here is on the Direxion Daily S&P Biotech Bear 3X Shares LABD.

The newly minted Direxion Daily S&P Biotech Bear 3X Shares was highlighted on August 7 with the point of that piece essentially being that biotech stocks had just come off a brutal week, which was great news for the first triple-leveraged bearish biotech ETF. Since then, LABD has climbed 17.6 percent, though as is par for the course with leveraged ETFs, that ride higher has not been bump-free. 

LABD, which debuted at the end of the May, attempts to deliver three times the daily inverse performance of the S&P Biotechnology Select Industry Index. That is the same index tracked by the SPDR S&P Biotechnology ETF XBI, the third-largest biotech ETF. Price action confirms LABD is doing its job quite well.

Related Link: 10 Biotech Stocks With Catalysts Coming Soon

The bearish biotech fund entered Thursday with a month-to-date gain of 31.2 percent, making it the best-performing triple-leveraged bearish ETF in Direxion's stable. Add in Thursday's gain of 11.5 percent at time of writing and LABD is up nearly 43 percent just this month. 

Just six ETFs have made new highs today and LABD is one. Conversely, the new low list is packed with 132 ETFs, including LABD's bullish counterpart, the Direxion Daily S&P Biotech Bull 3X Shares LABU.

What bodes well for LABD in the near-term is a scenario that has shown itself time and time again in pairs of leveraged ETFs. Traders are piling into the member of the pair that is sinking, in this case LABU, while ignoring the better-performing part of the duo, obviously LABD. According to Direxion data, LABU has added assets over the past month but traders have pulled cash from LABD.

In fact, since LABD and LABU debuted on the same day in late May, the bullish fund has added over $107 million in assets while LABD has attracted less than $9 million. LABD has gained over 4 percent since coming to market, while LABU is lower by more than 23 percent.