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  1. Leveraged & Inverse ETF Channel
  2. Small-Cap Bears Might Stay Ahead of Bulls
Leveraged & Inverse ETF Channel
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Small-Cap Bears Might Stay Ahead of Bulls

Ben HernandezJul 06, 2022
2022-07-06

Small-caps have been feeling the brunt of the downward pressure on stocks, even more so than their large-cap peers, as usual. With recession fears constantly looming, this could keep the bears ahead of the bulls, unless a year-end recovery comes.

When markets rally, small-caps can offer traders amplified gains in a recovery. Of course, the same can be said in reverse when a downturn ensues, forcing investors to see the safety of large-caps.

“Investors usually prefer the safety of blue-chip names over small-company stocks during economic downturns,” a Barron’s article said. “Small-caps have historically performed worse than large-caps when the U.S. has entered a recession.”

The U.S. Federal Reserve’s rate hiking is causing investors to fear that a forced recession could be ahead in order to springboard the economy back to life. That said, this is where a potential small-cap rally could occur.

“There are good reasons to suspect that pattern might not hold—despite recessionary concerns from rising interest rates and inflation,” the article added further. “Small-caps could now prove more resilient than blue chips, while still providing more upside during an economic recovery.”

2 Trades to Play the Move

The near-term move might be to stick with bearishness and the Direxion Daily Small Cap Bear 3X Shares (TZA A-), which is up over 60%. TZA seeks daily investment results equal to 300% of the inverse (or opposite) of the daily performance of the Russell 2000® Index.

Should a recovery occur, however, traders can take the opposite side with bullishness and the Direxion Daily Small Cap Bull 3X Shares (TNA B-). Going the opposite direction of TZA, TNA seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Russell 2000® Index.


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Small Cap Bear Bull Graph

Direxion’s leveraged ETFs give traders:

  • Magnification of short-term perspective with daily 3X leverage.
  • Opportunity, with bull and bear funds for both sides of the trade.
  • Agility and liquidity to trade through rapidly changing markets.

For more news, information, and strategy, visit the Leveraged & Inverse Channel.

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