WEBL - WEBL: Internet Stocks Are In A Strong Uptrend (Technical And Intermarket Analysis)

2023-12-25 01:35:09 ET

Summary

• WEBL is ranked among the top ETFs in the equity leveraged funds class by Seeking Alpha Quant.
• The recent decrease in inflation strengthens the broad stock market rally.
• The internet industry is one of the top performers in the new rally, making it favorable for investing in internet stocks.

Summary

Seeking Alpha Quant ranks Direxion Daily Dow Jones Internet Bull 3X Shares ETF (WEBL) among the top ETFs in the class of equity-leveraged funds. The recent decrease in inflation strengthened the broad stock market rally. The internet industry is one of the top performers in the new rally. We believe that the current economic and market conditions are favorable for investing in internet stocks.

WEBL - Direxion Daily Dow Jones Internet Bull 3X Shares ETF

Direxion Shares ETF Trust - Direxion Daily Dow Jones Internet Bull 3X Shares is an exchange-traded fund launched by Direxion Investments. It seeks to track 3x the daily performance of the Dow Jones Internet Composite Index . Direxion Shares ETF Trust - Direxion Daily Dow Jones Internet Bull 3X Shares was formed on November 7, 2019.

Fund Details

Fund Type Miscellaneous

Issuer Direxion Funds

Inception 11/07/2019

Expense Ratio 1.01%

AUM $195.70M

Top 10 Holdings

Goldman Sachs Sterling FixInc Port Inc 21.83%

Dow Jones Internet Composite Index Swap7.65%

Amazon.com Inc 6.58%

Meta Platforms Inc Class A 5.37%

Alphabet Inc Class A 3.73%

Salesforce Inc 3.52%

Netflix Inc 3.36%

Cisco Systems Inc 3.18%

Alphabet Inc Class C 3.17%

PayPal Holdings Inc 2.16%

Total 60.54%

# of Holdings 50

*Holdings as of 2023-12-17

Investment Thesis

I rate WEBL as a BUY, with the expectation of healthy gains over the next twelve months.

There are a number of factors that support the thesis.

On the fundamental side, the recent decrease in inflation supports the market expectation of the Fed starting to cut interest rates in 2024. Lower interest rates will lead to improved earnings and, therefore better business environment for internet companies.

On the technical side, WEBL has been in a long-term uptrend since October 2022. The fund has been a top performer during the latest market rally that started on October 27.

Price Action

The chart below shows the price action of WEBL over the last twelve months. It made huge gains over this period, despite suffering two corrections. Since the end of October, WEBL has been in a strong uptrend.

Because WEBL is a leveraged instrument, it is appropriate to analyze its performance relative to the stock index on which it is based. The next chart shows its price evolution versus that of the Internet Index .

The chart shows clearly that the leveraged fund is not suitable as a buy-and-hold long-term investment. Since its inception on November 7, 2019, WEBL lost more than a third of its initial investment (-34.17%), while the internet index gained 42.69%.

We see that the internet stocks display long periods of movement in one direction. From the 4-year chart, we selected 3 periods of strong trends and displayed their charts. For each period, we also show the returns of the index DJINET and those of the leveraged fund, WEBL.

3/16/2020 – 2/16/2021 Returns: Index (125.96%), WEBL (688.58%)

11/16/2021 – 6/16/2022 Returns: Index (-51.12%), WEBL (-91.70%)

Note: The loss in WEBL is disastrous; to recover all losses, WEBL needs a return of 1,104.82%, while the index needs 104.58%.

12/30/2022 – 12/22/2023 Returns: Index (52.77%), WEBL (170.93%)

Market State

To determine the state of the market we compute the difference in total returns of the following four ETF pairs: (DBB, UUP), (XLI, XLU), (SLV, GLD) and (XLC, XLV) over an evaluation period. The evaluation period is variable. It is a function of market volatility.

Currently, the evaluation period is 78 trading days and three of the four pairs indicate risk-on. Only one pair (SLV, GLD) indicates risk-off.

Additionally, I watched the behavior of the market implied volatility. Lately, VIX declined to levels not seen since before the COVID crash.

The market state is supportive of a continuation of the rally. The underlying index and most stocks in its composition are in an uptrend. The prevailing market expectations are for the Fed to stop raising interest rates and start cutting rates by the summer of 2024. Declining interest rates are very beneficial for internet and technology stocks.

Conclusion

I rate WEBL as a BUY for the following reasons:

Most stocks in its underlying index are profitable. WEBL has a very strong momentum and has been outperforming the broad market since October 27 Seeking Alpha Quant has a high STRONG BUY rating of WEBL (4.85/5).

WEBL is a BUY because its non-leveraged counterpart is in an uptrend. Being a leveraged fund, WEBL is not suitable for long-term investing, however.

Risk Warning

WEBL, as a leveraged fund, may suffer value erosion and should only be used as a tactical, short-term investment vehicle.

Here is a detailed message from the SEC on the risks inherent in leveraged ETFs.

For further details see: