Play The Political Angle In The EV Sector With Direxion's 2X Bull And 1X Bear Funds

Tesla Inc TSLA stakeholders are digesting the latest political move, which has President Joe Biden stepping down from the contentious electoral race. The shocking measure will likely have significant implications for the electric vehicle (EV) market. Just several days ago, the Biden administration announced that it intended to inject nearly $1.1 billion in funding to support legacy automakers' efforts in developing manufacturing hubs for EVs.

Naturally, the Democrats are under severe pressure to rally behind the eventual nominees for president and vice president. Biden has endorsed current vice-president Kamala Harris to take the top role. However, other viable candidates include Michigan governor Gretchen Whitmer and California governor Gavin Newsom.

Fundamentally, the latest shakeup in the electoral sphere may give former president Donald Trump an easier road to the White House. Unlike the Democrats, the Republicans are firmly behind Trump and running mate Sen. J.D. Vance of Ohio. What makes the situation tricky for TSLA stock is that the former real estate mogul and reality television star has not expressed strong support for EVs.

In fact, Trump couldn't be clearer about his views on new-energy vehicles. "I will end the electric vehicle mandate on day one, thereby saving the auto industry from complete obliteration, which is happening right now and saving U.S. customers thousands and thousands of dollars per car," he stated during the Republican National Convention in Milwaukee last week.

Still, a wrinkle to this narrative is Tesla CEO Elon Musk. Just a day before the former president made the blunt remarks, Musk pledged a $180 million donation to Trump's campaign. It is possible that the real estate tycoon may attempt to return the favor if he secures the White House. Thus, TSLA stock may have an opportunity for upside.

The ETFs: For investors interested in attempting to profit from their views on Tesla, there are two popular exchange-traded funds to consider: Direxion Daily TSLA Bull 2X Shares TSLL and Direxion Daily TSLA Bear 1X Shares TSLS. The former ETF should double the return of TSLA stock while the latter fund aims to replicate the percentage magnitude of Tesla but in the opposite direction; that is, the TSLS rises when TSLA stock falls.

These ETFs provide investors with a convenient mechanism to speculate on Tesla without engaging the more complex options market. However, both the TSLL and TSLS are designed for short-term exposure no greater than one day. That's because the daily compounding effect of leveraged or inverse ETFs may exaggerate losses over the long run.

The TSLL Chart: Following Tesla's second-quarter vehicle deliveries coming in stronger than expected, TSLA stock took off. Naturally, the bullishness sent TSLL skyward. However, the 2X ETF is now attempting to break out of a consolidation pattern.

• So far, TSLA stock is responding positively to the latest developments, which has contributed to a robust lift in the TSLL fund.
• Monday's candlestick in the leveraged ETF features a very small lower wick or shadow, indicating strong positive sentiment right out the gate.
• TSLL is still stuck in a consolidation cycle and must convincingly break out of the $14 resistance line to signal a sustained rally.

The TSLS Chart: On the other hand, good news is bad news for an inverse fund. Unsurprisingly, TSLS fell sharply when Tesla reported its relatively strong Q2 deliveries. Still, the bears have been trying to push off from the low of the July 11 session.

• As expected, the sharp move higher in TSLA stock resulted in a substantial loss in value for the TSLS fund.
• The one positive factor is that since the trough of July 11, the inverse ETF has generally charted a series of higher lows.
• Looking ahead, the $17.50 level, which provided support between July and December 2023, is now acting as resistance. The next target for Tesla bears is for TSLS to break above this level.

Featured image by F. Muhammad from Pixabay