GUSH Stock Forecast: Leveraging Uncertainty
This GUSH Stock Forecast article was written by Sergey Okun – Financial Analyst intern I Know First.
Highlights:
- Since November 2020, GUSH has grown by 244%
- Expected the spread XOP/SPY growth by 47%
- Expected a positive price dynamic for XOP (a basis asset for GUSH) and SPY
The pandemic introduces fundamental uncertainty on financial markets, but government measures to stimulate and support the economy allow to form a certain attitude of investors in the short term that could be profitably realized by investing in leveraged ETFs. Also, we have a positive signal about economic recovering in the long run. So, according to Yahoo Finance, a survey from the Institute for Supply Management showed activity in the US services industry reached its highest level on record in March amid growth in new orders. Below is the figure of the daily volatility of GUSH, XOP, and SPY where each point of volatility is calculated by logarithmic return for the previous 252 days.
The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull (GUSH) is a leveraged ETF that seeks daily investment results, before fees and expenses, of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOPTR). SPSIOPTR is provided by Standard & Poor’s Index Provider and includes domestic companies from the oil and gas exploration and production sub-industry. The Fund does not seek to achieve its stated investment objective for a period of time different than a trading day.
The Fund is designed as a short-term trading vehicle and intended for active investment strategies. Each day, the Fund rebalances its portfolio on a daily basis, increasing exposure in response to that day’s gains or reducing exposure in response to that day’s losses. Consequently, GUSH return for a period of more than 1 day will be a result of a cumulative return for all previous days which will be different from the benchmark. Longer holding periods, higher volatility of the Index, and leverage increase the impact of compounding on an investor’s returns.
Usually, GUSH invests at least 80% of its net assets plus borrowings to financial instruments that provide daily leveraged exposure to the Index or to ETFs that track the Index. Commonly the Fund invests in swap agreements and futures contracts which are intended to produce economically leveraged investment results, but also the Fund could invest in securities of the Index and other ETFs that track the index. GUSH may not always have investment exposure to all of the securities in the Index or its weighting of investment exposure to securities may be different from the Index.
Despite that structure of GUSH could be different at any time and It does not simulate SPSIOPTR to the full, perspective of GUSH depends on the future dynamic of the benchmark. XOP is an ETF that fully tracks SPSIOPTR. For instance, the coefficient of determination between GUSH and XOP is 0.9 (estimated by daily logarithmic return for the period 03.01.2018 – 05.04.2021).
Oil and Gas are Restoring Positions Among Financial Assets
Today, stock prices reflect the current situation with COVID-19 and it is reasonable to expect that, as the global economy is recovering, the main economic connections between markets should return to pre-pandemic levels. Before COVID-19 fully introduced itself on February 20th, 2020, the risk of COVID-19 had been reflected in the prices of financial assets. Below the figure of weekly prices of ETF XOP, ETF SPY, and Brent Crude Oil. Prices of ETF XOP and Brent Crude Oil began to decrease from January 7th, 2020 while ETF SPY dropped (as other assets) on February 20th, 2020. The spread XOP/SPY was 0.29 on December 31st, 2019, on April 05th, 2021 the spread is 0.20.
As we can see in the chart, currently the spread price is on the uptrend from October 2020. and it is lower than MA-50 that gives a signal about the downtrend in the short term, but we do not have a signal about the downtrend in the long run because the spread is higher than MA-100 and MA-200. Also, reasonable to expect that spread will reach the pre-pandemic level of 0.29 while the story with COVID-19 is going to end.
However, increasing a spread can happen either on the bullish or bearish market and it is important to consider the dynamic of market prices. Below We see that both XOP and SPY are on an uptrend now. They are higher than all the three moving averages (the green line is MA-50 days; the yellow line is MA-100 days and the red line is MA-200 days).
As we can see in the chart, currently XPO and SPY are on the uptrend and they are higher than all of the three moving averages (the green line is MA-50; the yellow line is MA-100 and the red line is MA-200). We can notice some grade of price correction on XOP and I expect a correction in near time on SPY, but there are not signals now that after a potential correction tendencies will change from an uptrend to a downtrend.
Conclusion
GUSH is a leveraged ETF that seeks daily investment results of 200% of the daily performance of the SPSIOPTR. XOP is an ETF that fully tracks SPSIOPTR and consequently can be used as a proxy for forecasting GUSH. I expect that spread between XOP/SPY will rise and reach the pre-pandemic level of 0.29 with the positive price dynamic of XOP and SPY that will have a positive determine effect on GUSH.
It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the GUSH stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.
Past Success with GUSH Stock Forecast
I Know First has been bullish on the GUSH stock forecast in the past. On January 5th, 2021 the I Know First algorithm issued a forecast for GUSH stock price and recommended GUSH as one of the best consumer stocks to buy. The AI-driven GUSH stock prediction was successful on a 3-month time horizon resulting in more than 80.90%.
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Please note-for trading decisions use the most recent forecast.
