Investors Following Housing Sentiment May Consider Direxion's NAIL ETF

Following the COVID-19 pandemic, active listings for single-family homes fell conspicuously due to public health concerns and mandated stay-in-place orders. Naturally, this framework sparked a demand bottleneck, cynically benefiting homebuilders as society gradually normalized. However, incoming political shifts could present concerns for the broader housing market.

Specifically, President-elect Donald Trump throughout the campaign trail for the 2024 election broadcasted anti-immigration sentiments. Combined with his proposed tariffs on building materials, Trump's policies could drive construction costs higher. Potentially, such a development could negatively impact demand as most Americans have struggled to get ahead of the paycheck-to-paycheck cycle.

Still, it's not all doom and gloom. Despite historically high mortgage rates, several Sun Belt cities may be poised for explosive sales growth in 2025, according to projections from sites like Realtor.com. Several cities in Texas have consistently placed in the top rankings regarding housing demand. Further, booming areas such as Miami, Virginia Beach, Richmond and Charlotte may reignite currently deflated sentiment for homebuilding stocks.

The Direxion ETF: For investors that view the glass as half-full, the Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL offer the ultimate in speculation. A leveraged exchange-traded fund, NAIL seeks a return that is 300% of the performance of the Dow Jones U.S. Select Home Construction Index.

Fundamentally, one of the benefits of a 3X-leveraged fund is convenience. Typically, traders seeking to magnify their returns over a short time period use options, which introduce complexities. In contrast, investors can buy units of the NAIL ETF, much like buying shares of a publicly traded company. Further, NAIL covers a basket of securities, including names like DR Horton Inc DHI and Lennar Corp LEN LEN.

However, as a 3X-leveraged ETF, NAIL carries significant volatility risks. Notably, Direxion states that the fund should not be expected to provide three times the benchmark index's cumulative return for periods greater than a day. That's because exposure lasting longer than a day may expose the trader to valuation decay due to the effects of daily compounding.

Nevertheless, weekly returns of the NAIL fund over the trailing five years reflects an upward bias. Of the past 261 weeks, 146 weeks saw a positive return, reflecting a success ratio of 55.94%. What's more, there have been 12 weeks (not including last week) where NAIL lost 20% of value or more. Of this dataset, eight of the following weeks generated positive returns, with an average performance of 25.55% up.

Interestingly, in the business week ending Dec. 20, the 3X bull fund lost 21.66% of value.

The NAIL ETF: Although the leveraged housing fund was looking strong up until late November, economic and political uncertainties saw the ETF go negative for the year.

• At the moment, the technical backdrop isn't enticing, with NAIL falling through its 50- and 200-day moving averages in late November and early December, respectively.
• On the positive side, NAIL is trading above the critical $80 level, which previously acted as support throughout 2021.
• Moving forward, it's imperative that the bulls establish a baseline of support here. This seems credible given the aforementioned upward bias, especially following a severe weekly correction.

Featured image by Oleksandr Pidvalnyi from Pixabay.