Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. Investing in the Funds is not equivalent to investing directly in MSFT.
One of the strongest stocks in the technology sector and the broader market overall year-to-date has been Microsoft. This legacy tech name has managed to continue innovating over the years and has emerged as a leader in the artificial intelligence race. But over the past couple weeks, the stock has faced a barrage of selling. Is this a dip buying opportunity or the start of more tumult for this market-leader?
MSFT: Doom or Boom?
The global economy was recently shocked by a cyber outage that has impacted Windows operating systems. This is obviously a major component and legacy segment of Microsoft’s business.
This type of systemic outage is compounding some of the recent negative sentiment in the broader technology space. However, this may offer traders an opportunity to capitalize on one of Microsoft’s biggest pullbacks of the year.
On the business front, Microsoft Edge is beginning to catch up to Amazon Web Services in terms of market share in the cloud infrastructure business. There are even rumors that Microsoft may be one of the next big stock splits since it’s a component in the Dow Jones Industrial Average.
Traders that think the recent pullback in Microsoft is a dip-buying opportunity may find a position with Direxion’s Daily MSFT Bull 2X Shares (Ticker: MSFU), which seeks daily investment results, before fees and expenses, of 200% of the performance of common shares of Microsoft Corporation (Ticker: MSFT).
Below is a daily chart of MSFT as of July 18, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
The slanted blue lines represent an uptrend. An uptrend describes the price movement of a financial asset when the overall direction is upward.
Recession and Infrastructure Concerns
Regardless of the cause of the global computer outage, the psychological impact on the market could lead to a further selloff in shares of Microsoft in the near-term, especially if it isn’t fully resolved soon.
There are also risks on the political front as we approach election season, as well as the possibility of a broader economic slowdown. The probabilities currently favor a rate cut in September, and while markets may initially cheer the return of accommodative monetary policies, it does signal the risk of a recession in rising.
The next Fed meeting is on July 31. If the Fed panics and cuts rates earlier than expected, it may cause markets to lose confidence at first, and lead to a broader market selloff.
In this situation, Direxion’s Daily MSFT Bear 1X Shares (Ticker: MSFD), which seeks daily investment results, before fees and expenses, of 100% the inverse (or opposite) of the performance of common shares of Microsoft Corporation (Ticker: MSFT) may offer a tradable opportunity.
Sector and Single Stock Alternatives
For those seeking to speculate in other individual, leveraged equity names, Direxion offers funds that track names like Apple, Meta, Nvidia, Amazon, and more. Investing in the Funds is not equivalent to investing directly in the underlying stock.
The Direxion Daily AAPL Bull 2X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 200% of the performance of Apple Inc. common stock, while the Direxion Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Apple Inc. common stock.
The Direxion Daily META Bull 2X Shares (Ticker: METU) seeks daily investment results, before fees and expenses, of 200% of the performance of Meta Platforms, Inc. common stock, while the Direxion Daily META Bear 1X Shares (Ticker: METD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Meta Platforms, Inc. common stock.
The Direxion Daily NVDA Bull 2X Shares (Ticker: NVDU) seeks daily investment results, before fees and expenses, of 200% of the performance of NVIDIA Corporation common stock, while the Direxion Daily NVDA Bear 1X Shares (Ticker: NVDD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of NVIDIA Corporation common stock.
The Direxion Daily AMZN Bull 2X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 200% of the performance of Amazon.com, Inc. common stock, while the Direxion Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Amazon.com, Inc. common stock.
Traders seeker broader and more leveraged exposure in the equity sector may find an opportunity with Direxion’s Daily S&P 500 Bull 3X Shares (Ticker: SPXL) and Direxion Daily S&P 500 Bear 3X Shares (Ticker: SPXS), which seek daily investment results, before fees and expenses, of 300%, or -300%, respectively, of the performance of the S&P 500 Index*.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The S&P 500® Index (SPXT) is designed to be comprised of stocks that are the 500 leading, large-cap U.S. listed issuers. The securities are selected on the basis of market capitalization, financial viability of the company, sector representation, public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index. One cannot invest directly in an index.
The Funds have derived all disclosures contained in this document regarding Microsoft Corporation from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Microsoft Corporation is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Microsoft Corporation have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Microsoft Corporation could affect the value of a Fund’s investments with respect to Microsoft Corporation and therefore the value of the Funds.
Technology Sector Risk — The market prices of technology related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel.
Microsoft Corporation Investing Risk — Microsoft Corporation faces risks associated with competition in the technology sector and among platform based ecosystems, including its cloud-based services; the evolution of its business, including the development of its new products and acquisitions, joint ventures and strategic alliances; cybersecurity, data privacy and platform abuses; significant investment may occur on products and services that do not achieve their expected results; operations, including excessive outages, data losses or disruptions of online services; quality or supply problems; legal, regulatory and litigation risks; and the ability to attract and retain talented employees.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Microsoft Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Indirect Investment Risk, and risks specific to the technology sector and internet company industry. Additional risks include, for the Direxion Daily MSFT Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily MSFT Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.