This Leveraged ETF Is Nailing It

One of this year's most impressive redemption stories on Wall Street is that of the homebuilders. After plunging nearly 31 percent last year, the Dow Jones U.S. Select Home Construction Index is higher by 17.20 percent this year.

What Happened

Aggressive traders looking to capitalize on the resurgence of homebuilders equities should consider the Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL. NAIL, the only triple-leveraged exchange-traded fund dedicated to homebuilder stocks, attempts to deliver triple the daily returns of the aforementioned Dow Jones U.S. Select Home Construction Index.

“And if you ask specialists such as Mary Ann Bartels, Bank of America-Merrill Lynch's head of ETF strategy, this environment isn't all that different from the homebuilders' last hurrah in 2012,” reports CNBC.

As a reminder, homebuilders slumped in 2011 before rallying in 2012. There was a similar scenario that played out in 2018 as well.

Why It's Important

The Dow Jones U.S. Select Home Construction Index is on pace for its best quarter since 2012. While NAIL is up a jaw-dropping 55 percent this year, the leveraged homebuilders ETF could be in for more near-term upside because the Dow Jones U.S. Select Home Construction Index still needs to rally another 15.26 percent to reclaim its 52-week high.

Underscoring the strength in homebuilders equities, several members of the Dow Jones U.S. Select Home Construction Index hit three-month highs on Monday.

Some data points indicate the homebuilders rebound is prompting traders to look at NAIL. For the five days ending Friday, March 22^nd, volume in NAIL was 87.65 percent above the trailing 20-day average, according to Direxion data. Just two other Direxion leveraged ETFs saw larger volume increases over that span.

What's Next

New home sales slipped in January, a data point that caught some market observers by surprise because mortgage rates are declining. The rally in homebuilders and traders' appetites to leverage that trade with NAIL could be tested over the medium-term if home sales data remains sluggish while mortgage rates continue falling.

Homebuilders are one of the few groups that have yet to reclaim their pre-financial crisis highs. The iShares U.S. Home Construction ETF ITB, which tracks the Dow Jones U.S. Select Home Construction Index, would need to gain 42.53 percent from Monday's close to reclaim its 2006 high.

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