ETFs
Direxion Junior Gold Miners Bull And Bear ETFs Enable Two-Way Plays for Precious Metal
Direxion Daily Junior Gold Miners Index Bull 2X Stock (NYSE: JNUG) and Direxion Daily Junior Gold Miners Index Drops Stocks 2X (NYSE:JDST) both find themselves in the spotlight but for contrasting reasons. The former leveraged exchange-traded fund lost more than 4% during Thursday afternoon trading while the latter rose almost 4%.
The underlying gold market has rebounded sharply since late February this year, mainly due to inflationary concerns. Indeed, last year, the retail giant Costco (NASDAQ: COST) reported selling millions of dollars worth of gold bullion to its members. Costco began selling one-ounce bars in September.
Basically, one of the biggest enablers of the precious metals ecosystem is the Federal Reserve. Ahead of the release of the May jobs report on June 7, gold prices soared amid speculation that the central bank would cut its benchmark interest rate. Lower borrowing costs could boost economic activity, which should theoretically have a positive effect on commodities.
However, after the jobs report was released, economists found that nonfarm payrolls increased by 272,000, far exceeding their expectations of 180,000. This dynamic presents a mixed signal. On the one hand, this means that more dollars could chase fewer goods, which would be inflationary. But on the other hand, the strong employment numbers imply that the Fed could delay rate cuts until much later.
With contrasting fundamentals in play, speculators can play both sides of the gold market: JNUG for those who are bullish on the precious metals and JDST for those who believe the sector will face a correction. Regardless, market participants should be aware that leveraged ETFs are trading vehicles and are not designed for long-term buy-and-hold strategies.
The JNUG chart
Although JNUG has performed strongly since late February, the ETF began to experience a loss of momentum after the May 21 session. After falling below its 20-day exponential moving average (EMA), the fund managed to move higher on June 6. Unfortunately, the volatile price action sent the price below the aforementioned benchmark.
One of the main concerns is that during the June 7 session, JNUG fell below its 50-day moving average. This is a key indicator of short-term market health. A subsequent attempt to break through this upward resistance barrier quickly failed, leading to more volatile price action.
At present, it is possible that JNUG is charting a bearish head and shoulders pattern, with a first defined shoulder materializing around April 11th and a prominent head forming on May 20th. a pop to around $41 before a possible price collapse due to bull exhaustion.
The JDST chart
As expected, JDST widely publicized the anti-bull fund narrative. Here, the bearish ETF has suffered significant erosion in value since late February. However, JDST appears to have reached a short-term bottom during the May 21 session. Thereafter, the price action quickly found itself above the 20-day EMA.
Another remarkable point, during the session of June 13, the JDST managed to exceed its 50 DMA. Again, as a commonly assessed barometer of near-term health, the rise could help draw more eyes to gold’s “negative” opportunity.
Although the latest developments are encouraging for pessimists, the next logical target for JDST is the $4.20 level. This line previously represented support throughout April and part of May before collapsing. It is therefore imperative that the bear fund exceeds this level.
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