Trump 2.0 Presents Both Promise And Pitfalls For Direxion's Small Cap Bull And Bear Funds

For speculative traders seeking exposure to daily sentiment swings, the new year seemingly offers plenty of ammunition. With President Donald Trump entering his second term, the outspoken leader wasted no time reshaping U.S. policy with a flurry of executive orders. These actions encompass a range of subjects, including energy, immigration, inflation, social policies and trade.

Thanks to a unique vision that sharply contrasts with the prior Biden administration, several sectors rose to the forefront. Perhaps the most prominent example is the cryptocurrency market. Ever since Trump's electoral victory last November, the ecosystem for blockchain-derived assets has been invigorated. Throughout the campaign trail, the former real estate mogul openly and enthusiastically embraced decentralized digital assets.

In addition, President Trump's pro-business mandates – which notably include deregulation and lower corporate taxes – may reinvigorate a risk-on framework. Emerging industries, such as quantum computing and space economy specialists, have been clear beneficiaries of the conducive environment. These factors combine with a greater emphasis on building out digital infrastructures to create plenty of upside opportunities for investors to find.

Still, not everything is leaning toward the northward direction. Given the sharp pivot from the prior administration, there are bound to be losers. Among them sit market segments tied to renewable energy. In particular, shares of electric vehicle stocks faltered recently amid radical changes under Trump 2.0. With the president promising to "drill, baby, drill," the move toward hydrocarbons has caused anxiety among green energy proponents.

Moreover, elements outside of direct executive control may cause the equities arena to stumble. Perhaps most worryingly, interest rates could stay elevated for longer than desired, in large part due to a red-hot labor market. When these factors are seen in conjunction with a potential misreading of broader risk, investors could be facing a surprisingly dynamic ecosystem.

The Direxion ETFs: To put it simply, the market could be liable to move in any direction, depending on the prevailing winds. With that in mind, the most adventurous and aggressive investors may consider ultra-leveraged exchange-traded funds. For the optimists, the Direxion Daily Small Cap Bull 3X Shares TNA seek the daily investment results of 300% of the performance of the Russell 2000 index.

With exposure to the TNA ETF, traders can potentially enjoy significant upside without having to buy call options. Instead, market participants can pick up units of TNA, similar to any publicly traded enterprise. In the same vein, bearish speculators can acquire units of the Direxion Daily Small Cap Bear 3X Shares TZA rather than needing to resort to purchasing put options.

While the Direxion 3X ETFs are convenient, investors should note the volatility risks involved in these financial products. As Direxion's website states, these leveraged ETFs are designed for trading exposure lasting no longer than one day.

The TNA ETF: Although the chart for the Daily Small Cap Bull ETF is a choppy affair, anticipation of a much more business-friendly environment has bolstered sentiment recently.

• Over the trailing one-month period, TNA gained almost 8% of value, driving the price action above the 200-day moving average (DMA).
• Technical resistance lies at the 50 DMA, which currently stands a bit above $48. For the bulls, this will be the next natural target.

The TZA ETF: A volatile canvas, the Daily Small Cap Bear ETF has struggled over the past 52 weeks, losing more than 45%. However, an economic shock could revitalize the inverse fund.

• For proponents of the TZA ETF, it's vital for the bear fund to keep its head above the psychologically and technically significant $10 level.
• Right now, the 50 DMA provides support for TZA. Moving forward, the upside target is where the 200 DMA stands at a few clicks above $15.

Featured image by Gerd Altmann from Pixabay.