Another day, another intrday record for the Dow Jones Industrial Average. Buoyed by a stronger-than-expected February jobs report, U.S. stocks continue to grind higher.
Friday's action is of the modesty variety, perhaps disappointing eager bulls that were expecting more on the back of the jobs report.
That can be interpreted as a positive sign and perhaps open the door for aggressive traders to embrace some bullish leveraged ETFs.
With the benefit of the SPDR S&P 500 (NYSE: SPY ) rising nearly nine percent year-to-date, plenty of leveraged bull ETFs have soared as well and now look overbought.
When it comes to using these funds over the next few weeks, the key for traders is focusing on situations, meaning identification of leveraged ETFs that are or close to a potential sweet spot that can lead to further near-term upside. Consider the following.
ProShares Ultra Financials (NYSE: UYG ) Plenty of traders are talking about the recent bullishness in the Financial Select Sector SPDR (NYSE: XLF ), the largest ETF tracking financial services stocks.
With good reason, too. The stress results released on Thursday were mostly positive and that was enough to extend XLF's impressive year-to-date performance which has the ETF hovering near a new 52-week high.
Bringing the conversation back to UYG, this double leveraged ETF is not a play on XLF. Rather, UYG attempts to deliver two times the daily performance of the index tracked by the iShares Dow Jones U.S. Financial Sector Index Fund (NYSE: IYF ), an ETF that has slightly outpaced XLF this year.
As was noted on Thursday , the Comprehensive Capital Analysis and Review stress test results are due out next week.
That is when the Federal Reserve can approve or reject banks' capital plans such as dividends and share buybacks. In other words, a significant catalyst could be looming over the next few days for UYG.
ProShares Ultra Nasdaq Biotechnology (NASDAQ: BIB ) The ProShares Ultra Nasdaq Biotechnology is the double-leveraged answer to the $2.37 billion iShares Nasdaq Biotechnology Index Fund (NASDAQ: IBB ).
One of the more obvious reasons to embrace BIB is that IBB is not just making new 52-highs, it is making all-time highs. So are the other major non-leveraged biotech ETFs such as the First Trust NYSE Arca Biotech Index Fund (NYSE: FBT ) and the SPDR S&P Biotechnology ETF (NYSE: XBI ).
Another reason to consider BIB is that biotech stocks have proven resilient to global macroeconomic headwinds. In other words, the sector's relatively low correlation to the S&P 500 can be a good thing .
ProShares UltraShort Yen (NYSE: YCS ) Alright, so we fibbed a bit because the ProShares UltraShort Yen is a bearish play on the yen. However, that means it is a bullish play on the U.S. dollar against the Japanese currency.
Technicalities aside, USD/JPY is trading at its highest levels in nearly four years and the yen is battling with the British pound for the dubious honor of the world's worst-performing developed market currency in 2013.
Here is the lingering catalyst for YCS, though it will require hanging onto the ETF for a few weeks. The next Bank of Japan meeting is in early April and that will be the first with (presumably) Haruhio Kuroda at the helm. Prime Minister Shinzo Abe nominated Kuroda because the latter favors higher inflation and a weaker yen.
Along those lines, it would not be surprising to see BoJ announce new monetary stimulus measures that go into effect soon after the April meeting. That means the yen likely falls and YCS keeps going higher.
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