Leveraged S&P 500 ETF Could Be Poised for More Gains

ETF Trends

This article was originally published on ETFTrends.com.

This week, the S&P 500 reached a key bullish technical level, which could pave the way for gains in the Direxion Daily S&P500 Bull 3X ETF (SPXL) .

SPXL rose 2 percent on Friday behind investor optimism that a trade deal with China could get done sooner than later as the S&P 500 gained 0.79 percent. Last week, the S&P 500 slid past its 200-day moving average for the first time since December 3.

The S&P 500 was down 6.2 percent to end 2018, but it has since recovered after U.S. equities were roiled by volatility to close the year. December alone, the S&P 500 was down 9 percent, making it the worst December for the index since 1931.

To some technical analysts, breaking through that 200-day moving average paves the way for bigger gains ahead.

"It should open the door to 2,800 now.... It does feel like the advance/decline line is really strong. The broad-based rally is strong. We have two days of overseas markets rallying. It doesn't seem as if it's a fake out for now. ... The active bulls keep stepping up where they have to," said Scott Redler, partner with T3Live.com, a firm that offers live streaming for traders.

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An early sign of bullishness came late last week when the S&P 500 broke past the 2,700 level. Other technical analysts are seeing positive signs of more upside to come despite any pullbacks that may come.

"You could get a pull back to 2,550 to 2,600, and that may be all you need," said Strategas Research technical analyst Todd Sohn. "I do like what I'm seeing. It's important to remember the S&P is up 17 percent over 32 trading days. It's a really good run, and I don't want to stand in front of it, but at some point, it's going to need to pause for more than two or three days."

SPXL is heading towards its own 200-day moving average after the S&P 500 has already broken through its own key technical level.

Leveraged S&P 500 ETF Could Be Poised for More Gains 1
Leveraged S&P 500 ETF Could Be Poised for More Gains 1

One other key indicator according to Robert Sluymer, technical analyst at Fundstrat, is the recent reversal in the Shanghai stock market. It could be the telltale sign for a global recovery after the two largest economies are regaining their footing in the markets.

"All the stuff that rolled over at the beginning of 2018, one by one, are showing evidence of bottoming. Semiconductors in the fourth quarter, and we saw housing bottom in October and November. We saw the market bottom in December, and we saw a general rebound in almost everything, primarily growth and cyclical stocks," said Sluymer. "'We see general improvements taking hold, with China being one of the last market indexes to have reversed its 2018 downtrend."

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