This Biotech ETF Is Soaring, But A Bearish Friend Lures Traders

Biotechnology stocks and the related exchange traded funds are off to sizzling starts in 2019. Really, really sizzling. With the group off to its best start to a year since 2012, the S&P Biotechnology Select Industry Index is up more than 14 percent to start 2019.

What Happened

The soaring start to 2019 by the equal-weight S&P Biotechnology Select Industry Index is lifting the fortunes of the Direxion Daily S&P Biotech Bull 3X Shares LABU. LABU, one of the largest leveraged biotechnology ETFs, is up more than 45 percent year-to-date, easily making it ne of Direxion's best-performing leveraged bullish ETFs in the month of January.

LABU attempts to deliver triple the daily returns of the S&P Biotechnology Select Industry Index. LABU's strong start to 2019 signals strength in mid- and small-cap biotechnology stocks as the S&P Biotechnology Select Industry Index's 120 holdings have an average market capitalization of $10.92 billion.

Why It's Important

“Part of the biotech rally may be due to the oversold nature of the sector,” reports CNBC. “Biotech was among the market’s most oversold sectors in 2018, declining nearly 10 percent last year. A number of this week’s biggest gainers remain firmly in bear market territory.”

From 2013 through 2017, the S&P Biotechnology Select Industry Index finished higher in all but one of those five years, but last year, the index stumbled 15.30 percent.

While LABU is soaring, its ride higher has not always been smooth. Among Direxions' leveraged bullish ETFs, only one has been more volatile than LABU over the past 30 days, according to issuer data.

What's Next

LABU's ascent has some traders preparing for a biotechnology with retreat. The Direxion Daily S&P Biotech Bear 3X Shares LABD, LABU's bearish counterpart, is attracting assets at an impressive rate.

For the 10-day period ended Thursday, Jan. 10^th, LABD was Direxion's top asset-gathering ETF for the trailing one-, five- and 10-day periods. LABD's 10-day inflows equal over 67 percent of the fund's assets under management, according to issuer data.

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