Direxion Junior Gold Miners Bull And Bear ETFs Allow Two-Way Plays For The Precious Metal

6 days ago

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Direxion Daily Junior Gold Miners Index Bull 2X Shares (NYSE:JNUG) and Direxion Daily Junior Gold Miners Index Bear 2X Shares (NYSE:JDST) both find themselves in the spotlight but for contrasting reasons. The former leveraged exchange-traded fund lost more than 4% during Thursday’s afternoon session while the latter moved up nearly 4%.

The underlying gold market rebounded sharply since late February of this year, mainly due to inflationary concerns. Indeed, last year, retail giant Costco (NASDAQ:COST) reported that it sold millions of dollars’ worth of gold bars to its members. Costco began selling one-ounce bullion bars in September.

Fundamentally, one of the biggest catalysts for the precious metals ecosystem is the Federal Reserve. Prior to the disclosure of the May jobs report on Jun. 7, gold prices soared amid speculation that the central bank would cut the benchmark interest rate. Reducing borrowing costs may spur economic activity, which theoretically should have a positive effect on commodities.

However, upon the jobs report disclosure, economists discovered that nonfarm payrolls surged by 272,000, far exceeding their expectations for 180,000. This dynamic presents a mixed signal. On one hand, it means more dollars may chase after fewer goods, which would be inflationary. But on the other hand, the strong labor print implies that the Fed may put off rate cuts until much later.

With contrasting fundamentals in play, speculators can play both sides of the gold market: JNUG for those who are optimistic about precious metals and JDST for those who believe the sector will face a correction. Either way, 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

While JNUG has been a strong performer since late February, the ETF started to encounter momentum loss after the May 21 session. After falling below its 20-day exponential moving average (EMA), the fund managed to pop higher on Jun. 6. Unfortunately, volatile price action sent the price below the aforementioned benchmark.

One of the key concerns is that during the Jun. 7 session, JNUG slipped below its 50-day moving average. That’s a key gauge of near-term market health. A subsequent attempt to break above this upside resistance barrier quickly failed, leading to more volatile price action.

At the moment, it’s possible that JNUG could be in the middle of charting a bearish head-and-shoulders pattern, with a defined first shoulder materializing around Apr. 11 and a prominent head forming on May 20. If so, technical implications call for a pop to around $41 before a possible collapse of the price due to the exhaustion of the bulls.

The JDST Chart

As one might expect, JDST has largely broadcast the opposite narrative to the bull fund. Here, the bear ETF suffered a significant erosion of value since late February. However, JDST appears to have formed a near-term bottom on the May 21 session. Subsequently, the price action soon found its way above the 20-day EMA.

Another noteworthy point is that during the June 13 session, JDST managed to rise above its 50 DMA. Again, as a commonly gauged barometer of near-term health, the swing up may help attract more eyeballs to the “negative” opportunity in gold.

Although the latest development is encouraging for the pessimists, the next logical target for JDST is the $4.20 level. This line previously represented support throughout April and parts of May before breaking down. It’s imperative, then, that the bear fund break above this level.