Benzinga - by Melanie Schaffer, Benzinga Editor.
Direxion Energy Bull 2X Shares (NYSE: ERX) closed up 1.39% higher on Monday after bouncing up from the 200-day simple moving average (SMA) on Aug. 24, amid fast-paced economic growth in developing nations, which is threatening global climate goals.
The energy sector has been enjoying an upswing, seeing many major players in the sector rebound course recently. If the trend continues, ERX offers leverage for sophisticated traders.
The ETF: ERX is a double-leveraged fund that is designed to outperform companies held in the S&P Energy Select Sector Index by 200%. The index includes a variety of energy-related stocks, with two giants, Exxon Mobil Corp (NYSE: XOM) and Chevron Corporation (NYSE: CVX), making up 42.15% of its weighted holdings.
A few other top 10 names in the ETF include EOG Resources Inc (NYSE: EOG), weighted at 4.4%, ConocoPhillips (NYSE: COP), weighted at 4.46% and Schlumberger NV (NYSE: SLB), which is weighted at 4.93% within the ETF.
It should be noted that leveraged ETFs are meant to be used as a trading vehicle instead of long-term investments.
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The ERX Chart: ERX regained support at the 200-day SMA on July 31 and on Aug. 23, Aug. 24 and Aug. 25, the ETF back-tested that area and held above it. When a stock or ETF is trading above the 200-day SMA it’s considered to be enjoying a bull cycle and if ERX can continue to trend above the area, the 50-day SMA will cross above the 200-day, which will cause a golden cross to form.
- Although the ETF is trading above the 200-day SMA, it’s also trading in a downtrend between two parallel trend lines, which has settled ETX into a descending channel pattern. The formation is bearish for the short term, but when a stock or ETF breaks up from the upper falling trend line of the channel, it could signal a longer-term reversal to the upside is on the horizon.
- On Monday, ERX formed a shooting star candlestick, which suggests the local top may have formed and the ETF may trade lower on Tuesday. If that happens, bullish traders want to see the ETF bounce up from the median or lower trend line of the pattern.
- Bearish traders want to see big bearish volume break ERX down under the 200-day SMA, which could accelerate downside pressure.
- ERX has resistance above at $68.55 and at $72.15 and support below at $63.47 and at $59.07.
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