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. An investor could lose the full principal value of his or her investment in a single day. Investing in the Funds is not equivalent to investing directly in MSFT.
Microsoft has been one of the top-performing mega-cap stocks year-to-date. This impressive rally has been fueled by tremendous earnings growth, largely due to its cloud business. But will this be enough to keep the bulls afloat, or will the bears finally have their day?
Can Bulls Keep Pushing the Envelope?
Microsoft’s greater goal of evolving beyond a software developer for desktops at home and work seems to be bearing fruit. Its focus on developing its cloud business has rewarded the company with over $22 billion in revenue.
Management, led by CEO Satya Nadella, is putting this cash flow to work. The deal to acquire Activision Blizzard seems to finally be pushing through after several regulatory headwinds. This should help continue to drive bottom line growth as management targets 10% annual revenue growth over the next several years.
Not to mention, Microsoft just introduced an artificial intelligence subscription service for its Microsoft 365 software. This has the potential to increase subscription rates dramatically, and could be a major driver of revenue growth going forward.
Traders that favor the bullish case in Microsoft may find an opportunity with Direxion’s Daily MSFT Bull 1.5X Shares (Ticker: MSFU), which looks to track 150%, before fees and expenses, of the daily performance of Microsoft common stock (Ticker: MSFT).
To view the fund’s full holdings, click here. Holdings are subject to risk and change.
Below is a daily chart of MSFT as of August 3, 2023.
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.
How High is Too High?
One of the biggest concerns bulls are facing right now with Microsoft is the sheer value of the company. By multiple metrics, the stock is very expensive, and boasts a Price over Earnings (P/E) ratio* above 34.
Additionally, Microsoft is starting to see a drop in some key business segments. Its PC division dropped 7% in the last quarter, while its Windows business took a hit as well. These are cornerstones of the company, and could explain the drop in operating margins over the past several months.
Traders that are concerned over Microsoft’s valuation and find the stock to be overbought from a technical standpoint in the near-term may consider Direxion’s Daily MSFT Bear 1X Shares (Ticker: MSFD), which looks to track 100% of the inverse, before fees and expense, of the daily performance of Microsoft common stock (Ticker: MSFT).
The company’s next earnings report will likely be released in October. Their latest results from July 25 exceeded analyst expectations, but bears will need to keep a close watch on some of the concerning revenue trends come next quarter.
Stack the Deck with Tech
Traders seeking to broaden their exposure towards a sector-wide play may consider Direxion’s Daily Technology Bull 3X Shares (Ticker: TECL) and Daily Technology Bear 3X Shares (Ticker: TECS), which track 300% or 300% of the inverse (or opposite), respectively, before fees and expenses, of the daily performance of the Technology Select Sector Index (IXTTR).
There’s even a Direxion Daily Cloud Computing Bull 2X Shares (Ticker: CLDL), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Indxx USA Cloud Computing Index.
The Cloud Computing Index is provided by Indxx, LLC (the "Index Provider") and includes domestic companies that deliver cloud computing infrastructure, platforms, or services. The companies included in the Index are involved in the delivery of computing services – servers, storage, databases, networking, software, analytics, and more, over the internet, which is often referred to as the “Cloud." The Index Provider has defined cloud computing to include three themes: Infrastructure as a service; Platform as a service; and Software as a service.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
One cannot directly invest in an index.
The "Technology Select Sector Index" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by Rafferty Asset Management, LLC ("Rafferty"). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Technology Select Sector Index.
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 www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
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 index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
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; 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, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation Risk, Microsoft Corporation Investing Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Tax Risk, Indirect Investment Risk, Trading Halt Risk, and risks specific to the technology sector. Additional risks include, for the Direxion Daily MSFT Bear 1X Shares, risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
Distributor: Foreside Fund Services, LLC.