4 ETFs to Bet on a Rising Market

Focus: ETFs

Peter Way Image Peter Way Founder and CIO, Peter Way Associates

Here are several leveraged and volatility-driven ETFs recommended by Peter F. Way of Block Traders' ETF Monitor from deep in the trading world.

Leveraged Long ETFs are leveraged by their structure of holdings (rather than by financial borrowing) to compound the effect of the ETF's price in relation to changes in the prices of the underlying holdings.

As such, they tend to be volatile in nature, so are attractive vehicles for swing trading and for careful active shorter-term investing over periods of a few months. They have the advantage of ease of position entry and exit, and never require margin coverage beyond the initial cost commitment.

In over four years, Direxion Daily Energy Bull 3X Shares (ERX), the (3x) leveraged ETF holding energy stocks, has had 75 days with forecasts as attractive as the current one, and all but three of them have produced gains in our time-efficient disciplined test.

Including all 75, the average gain of 17.5% achieved in average holding periods of about three months, earned at an annual rate of 80%. The typical worst-case drawdown from cost was -18%, about equal to the average gain, but was recouped in nearly every holding to a substantial profit.

Direxion Daily Small Cap Bull 3X Shares (TNA), a (3x) leveraged small-cap index-tracking ETF, is another high-return performer after seeing forecasts as appealing as the present. In over 200 prior cases, 94% of them were profitable, with average gains, including the 13 losers, of 16%.

Holding periods of only ten weeks put the annual rate up to over 100%. Average maximum drawdowns of -14% were well under the typical profit, and nearly all were recouped and turned into nice profits.

ProShares Ultra Basic Materials (UYM), a (2x) leveraged ETF holding basic materials stocks, has had nearly two years of days (out of five years) with forecasts at least as attractive as today's, and has been able to reward investors with profits in seven of every eight cases.