The Fed Decision Has Livened Up Leveraged Regional Bank ETFs

A Federal Open Market Committee meeting is usually good for some increased activity in regional bank stocks and the relevant ETFs. Historically, regional bank stocks are highly correlated to Fed action, rising on expectations of higher interest rates and often tumbling when the Fed sounds dovish tones.

The largest regional bank ETF is higher by 10 percent amid last week's news that the Fed is starting to unwind its balance sheet For short-term traders, that could mean fresh opportunity with the Direxion Daily Regional Banks Bull 3X Shares DPST.

DPST looks to deliver triple the daily returns of the S&P Regional Banks Select Industry Index, one of the most widely followed regional bank benchmarks in the U.S. That index is a modified equal-weighted index that is designed to measure the performance of regional bank stocks, according to Direxion.

Pre-Fed Move

DPST was higher by nearly 10 percent leading up to last week's Fed meeting, as expectations were the central bank would signal an end to quantitative easing, which would be helpful to rate-sensitive regional banks.

The near-term case for DPST is bolstered by the fact that bond traders are ratcheting up expectations for a December interest rate hike. Just three weeks ago, bond markets were pricing in a 20 percent chance of a rate hike at the Fed's mid-December meeting, but that percentage has more than tripled to almost 64 percent. That could bode well for DPST.

Traders are responding, albeit in modest fashion, to DPST's potential for more upside. Over the past month, the ETF has averaged daily inflows of almost $75,000, according to Direxion data. 

The Other Side

DPST has a bearish counterpart, the Direxion Daily Regional Banks Bear 3X Shares WDRW. WDRW attempts to deliver triple the daily inverse returns of the S&P Regional Banks Select Industry Index.

Not surprisingly, WDRW has recently been taken to task, sliding 15 percent since the decision. However, there is some enthusiasm for this ETF. WDRW is averaging daily inflows of over $180,000 over the past month, according to issuer data.

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