By David Fajardo
Editor’s note: Any and all references to timeframes longer than one trading day are for purposes of market context only, and not recommendations of any holding timeframe. 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 ETFs are not for you.
As inflation continues to heat up and worries about a looming recession take hold, market sentiment has turned pessimistic over the past few months and FANG stocks — Facebook, Amazon, Apple, Netflix and Google — were some of the hardest hit, collectively sinking nearly 37% compared to the S&P 500’s 16% fall1.
Even so, some traders are still optimistic that the tumble is not permanent as these high-growth stocks have the means to recover from what could be a market overreaction — so long as they’re ready to brace for the stricter privacy regulations and consumer protections that could be headed their way.
Social Media Companies Pummeled By Privacy Lawsuits
At the end of May, the Federal Trade Commission (FTC) fined Twitter $150 million2 for selling users’ phone numbers and email addresses to advertisers after telling users that the data would only be used to secure their accounts.
The hefty fine comes just months after Facebook agreed to a $90 million settlement3 with users who had sued over the platform’s facial recognition software using auto-tagging to identify people in photos.
Likewise, Snapchat was hit with a class-action lawsuit4 of its own in May for illegally collecting users’ biometric data, including facial features and voices — a privacy breach that could result in penalties of up to $5,000 per violation per user.
The high costs of settlements sweeping through social media could put more short-term downward pressure on these stocks. Traders need to pay attention to how these companies rework their business models and recover their brand’s reputation. The ones with good pivot plans in place are likely to be the ones with the strongest recoveries to trade over the next few months.
Google’s Piecemeal Rollout of Apple-Like Ecosystem Could Bring New Growth Opportunities
Google is cash-heavy and using that cash to invest in building an Apple-like ecosystem5 that it’s calling Better Together.
While it’s been quietly adding ecosystem-like features across its Android and Chrome operating systems for years, it’s now sprinting toward the finish line with major updates and new software features slated for a launch every few weeks or months through the rest of 2022 — all of which could become tradeable upswings for its stock and those of the companies that build products for that ecosystem.
Signs Point to Netflix Plunge Being An Overreaction
After losing 200 million subscribers and announcing widespread layoffs, Netflix’s stock plummeted 63%6. This is one of its biggest losses to date, but signs point to the price being near its bottom, with analysts optimistic that it could recover.
The reason this could be the dip worth buying for Netflix: The company’s earnings arguably don’t match up with the sharp drop in share price. Netflix actually posted 10% revenue growth in the first quarter. It also reported an increase in free cash flow7.
Moreover, the acquisition of Boss Fight Entertainment and Next Games, which are expected to be completed in the second half of 2022, may signal the company’s move into gaming. This could be the beginning of a smart move toward improving customer retention and bolstering subscription rates by bundling its video-on-demand service with other entertainment.
For bullish traders, everything could point to an early indication that the stock has bottomed out and is ready for a near-term rebound.
Magnify The Bullish Swings With Direxion’s FNGG ETF
FANG stocks earned their reputations as high-growth stocks for a reason, and with many of these companies boasting healthy cash reserves and a track record for innovation, there might be plenty of potential rebounds to look forward to in the coming months. However, market sentiment remains unstable — verging on panic8 according to some analysts — so it could react strongly to any bad news, no matter how minor.
With that in mind, strategy is more important than ever, and finding ways to maximize each bullish trade you make will be key to offsetting periods of bearish weeks without many viable trades.
One possible way to do that is with the Direxion Daily Select Large Caps & FANGs Bull 2X ETF (FNGG). FNGG seeks daily investment results, before fees and expenses, of 200% of the performance of the ICE FANG 20 Index. While that means losses are magnified just as much as gains, it’s a useful way for those with a strategy in place to turn smaller swings into more profitable trades.
The ETF tracks the ICE FANG 20 Index, which is an equal-weighted index of 20 large-cap stocks, including all of the FANG stocks. As of 05/31/2022, the top 10 holdings in the index by weight are:
- Crowdstrike Holdings Inc. (NASDAQ: CRWD) – 6.67%
- Tesla Inc. (NASDAQ: TSLA) – 6.10%
- Nvidia Corp. (NASDAQ: NVDA) – 5.91%
- Snap Inc. (NYSE: SNAP) – 5.87%
- Amazon.com Inc. (NASDAQ: AMZN) – 5.78%
- Datadog Inc. (NASDAQ: DDOG) – 5.50%
- Alphabet Inc. (NASDAQ: GOOGL) – CI A – 5.45%
- Apple Inc. (NASDAQ: AAPL) – 5.30%
- Microsoft Corp. (NASDAQ: MSFT) – 5.26%
- Advanced Micro Devices Inc. (NASDAQ: AMD) – 5.08%
Watch for acquisitions, product and software launches and other news of innovation from these companies throughout the rest of the year. Then, define your entry and exit points clearly and keep your finger on the trigger to try to end each trade before the rollercoaster market swings back down.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.
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.
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