Market Overview

The Leveraged ETF Tech Trade During Earnings Season

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Tech sector earnings kick off in a big way in the next week, as big tech stocks like Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Facebook Inc (NASDAQ: FB), and Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) will all report earnings for the July quarter. 

Traders looking juice short-term trades on technology sector earnings can consider the Direxion Daily Technology Bull 3X Shares (NYSE: TECL) and its bearish counterpart, the Direxion Daily Technology Bear 3X Shares (NYSE: TECS). TECL tries to deliver triple the daily returns of the Technology Select Sector Index while TECS attempts to deliver triple the daily inverse returns of that popular tech benchmark.

That index “includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics,” according to Direxion.

Betting On Tech Earnings

If sell-side analysts are proven accurate, the right way to play the technology sector this earnings season, when using leverage, would be with the bullish TECL.

“At the sector level, analysts are most optimistic on the Information Technology (58 percent), Energy (57 percent), and Health Care (56 percent) sectors, as these three sectors have highest percentages of Buy ratings,” said FactSet

As just one example of analysts' enthusiasm for technology stocks, 89 percent of the ratings on Facebook Inc. (NASDAQ: FB) are Buys. Facebook is the fourth-largest holding in the index TECL and TECS track.

No Room For Disappointments

Flows data suggest traders have been favoring TECL over the bearish TECS by a significant margin in recent weeks. That is just one sign that marquee tech stocks will not be given much latitude in terms of disappointments this earnings season. 

“At the sector level, the Health Care (55 percent) and Information Technology (54 percent) sectors had the highest percentages of Buy ratings back on September 30, 2016,” said FactSet. “Over the past 12 months (since September 30, 2016), the Health Care sector has recorded the fifth highest price return of all 11 sectors at 12.8 percent, while the Information Technology sector has recorded the second highest price return of all 11 sectors at 26.1 percent.”

Apple, Microsoft, and Alphabet combine for about 35 percent of the index TECL and TECS track.

 

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Posted-In: Analyst Color Earnings Long Ideas News Sector ETFs Short Ideas Markets Analyst Ratings

 

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