The biotech sector was one of the darlings amid the vaccine rally in 2020, but there’s since been some bearishness, which is benefiting the Direxion Daily S&P Biotech Bear 3X Shares (LABD).
LABD climbed 16% the past month, giving bearish biotech traders something to cheer about. Of course, it helps to have leverage with LABD seeking daily investment results, before fees and expenses, that equal to 300% of the inverse of the daily performance of the S&P Biotechnology Select Industry Index.
The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes). The index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS).
LBD has been trading well below its 200-day moving average for most of the year. Lately, however, that narrative has switched as the fund broke past the average towards the end of July.
Momentum-wise, it’s still below the overbought level of 70. Depending on what the sector does through the rest of the year, bears could have more room to run with LBD.
Short-term traders might appreciate the fund moving up and down the 50-day moving average for much of 2021. The tight price channel within the 50-day moving average is ideal for scalpers.
Biotech Fatigue in the Markets?
Has the biotech sector started to lose its mojo in the final quarter of 2021? The Nasdaq Biotechnology Index has also dipped 9% within the last month, explaining the divergence with LBD’s performance.
Stocks like Moderna and Pfizer have been strong performers the past year after the introduction of the COVID-19 vaccine late in 2020. As global vaccination continues, biotech sector fatigue could be settling in as these stocks could be coming back down to earth from their 2021 peaks.
On the flip side, this could just be a minor setback. A CNBC article noted that there is heavy investor demand for initial public offerings (IPOs) in the biotech sector given their strong performances during the pandemic.
If that’s the case, bulls can opt to take the other side with the Direxion Daily S&P Biotech Bull 3x Shares (LABU). Skilled traders can buy the dips while selling the tops in the biotech sector using both LABU and LABD.For more news, information, and strategy, visit the Leveraged & Inverse Channel.
