A Pressured Environment Facilitates A Tactical Backdrop For Direxion's GUSH, DRIP ETFs

While fossil fuels represent a critical component of the broader U.S. energy infrastructure, the sector has encountered significant fluctuations. Last week, oil prices took center stage, with the domestic benchmark West Texas Intermediate sinking to $55 a barrel, which was its lowest level since January 2021. As circumstances currently stand, oil is locked in a tough circumstance between a challenging economy and shifting dynamics in the geopolitical landscape.

Recent labor market data showed that nonfarm payrolls rose by 64,000 in November, which technically beat expectations calling for 50,000. Unfortunately, the unemployment rate jumped to 4.6%, representing the highest level since September 2021.

Moreover, October labor market figures — which were delayed by more than two months due to the government shutdown — arguably imposed some distractions for analysts. Specifically, payrolls fell by 105,000, which stemmed from 157,000 layoffs in the public sector. However, private payrolls helped offset some of the red ink, which experienced an increase of 52,000.

Essentially, the soft figures implied muted economic activity moving forward, which then pressured oil prices. Moreover, the upstream component — which is tracked by the S&P Oil & Gas Exploration & Production Select Industry Index — has suffered a weak performance this year. Since the beginning of January, the upstream oil sector index has lost 5.46%. For context, the S&P 500 is up nearly 17% during the same frame.

Adding to concerns for potential headwinds impacting oil prices and upstream producers is the geopolitical realm. Due to accelerated high-level conversations, many observers believe that the war in Ukraine could be moving toward a resolution. If so, such a groundbreaking prospect may imply some normalization in relations with Russia, which could ease restrictions regarding the nation's oil exports.

While such a development obviously carries in terms of human life and societal stabilization, it may also mean increased supply risk in an oil market already in surplus. Still, not everything may be pointed toward doom and gloom in the upstream oil space.

It's possible that the Federal Reserve could adopt a more accommodating stance, depending on broader economic conditions. True, the odds of a dovish policy being implemented are very low. However, it's also important to note that rate cut odds for December were also low before they quickly skyrocketed.

If a similar circumstance were to occur again, oil prices could rebound in a hurry.

The Direxion ETFs: With dynamic narratives on both sides of the aisle, traders have ample opportunity to attempt to extract short-term profits. For those seeking a straightforward way to speculate on oil, financial services provider Direxion offers two countervailing products.

First, optimistic traders may consider the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull (NYSE:GUSH), which seeks the daily investment results of 200% of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. Second, for the pessimists, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (NYSE:DRIP) seeks 200% of the inverse performance of the aforementioned index.

In both cases, the marketing angle is the magnified speculation. Typically, those interested in leveraged or inverse trades must engage the options market. However, the underlying derivative instruments feature unique complexities that may not align with every investor's needs. With Direxion ETFs, the units can be bought and sold much like any other public security, thus mitigating the learning curve.

Nevertheless, prospective buyers should be aware that leveraged and inverse ETFs carry significant risks. Primarily, traders must be cognizant of the often-extreme volatility that can erupt with these funds. Further, these Direxion ETFs are designed for exposure lasting no longer than one day. Holding beyond the recommended period may lead to positional decay due to the daily compounding effect.

The GUSH ETF: Since the start of the year, the GUSH ETF has lost about 22% of value. Even in the trailing six months, GUSH has been volatile, losing approximately 10%.

• In the daily snapshot, the price action of GUSH sits below the 50- and 200-day moving averages. Additionally, it's sitting below the 20-day exponential moving average.
• Weekly candlesticks clearly show that the bull fund is stuck in a consolidation phase since June. Further, accumulative volume has been fading, which presents challenges.

The DRIP ETF: From the beginning of January, the DRIP ETF sank almost 16%. However, in the past month, the bear fund is starting to find momentum, gaining 7%.

• Although DRIP's price action sits below the 200 DMA, recent developments have pushed it above the 50 DMA and the 20-day EMA.
• Looking at weekly candlesticks, it's easier to denote rising accumulative volume, which may indicate brewing sentiment for the bearish trade.

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