How To Trade High-Growth FANG Stocks In A Panicky Market

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Widespread market volatility has reportedly created some dreamy trade opportunities for high-frequency traders in 2022, and FANG stocks — Facebook, Amazon, Apple, Netflix and Google — are leading that rollercoaster ride with a nearly 37% nosedive so far this year (outstripping the S&P 500’s 16% drop)1.

But is the tumble a sign that these high-growth stocks have finally hit the end of their meteoric rise or is it a market overreaction to temporary setbacks from stocks with bullish turns on the horizon? In either case, what should traders be watching for, and how should they leverage these possible bull opportunities?

Some Best Practices For Trading FANG Stocks

No matter what kind of market you’re in, here are some general best practices for finding possible trades among the FANGs.

1. Watch For Earning Releases

While the latest suite of earnings reports from these stocks was mixed, with some reporting growth and others posting losses, these companies are, for the most part, all still profitable and still have plenty of cash on hand to weather the storm.

Keep an eye out for the next earnings release dates, as strong financials and signs of recovery could help boost share prices.

2. Separate Hype From Reality In The Metaverse

The vision for the metaverse is to build a virtual reality where people go to work, socialize, play, study and shop. In other words: using tech to bring as much of our daily lives into the digital world as possible. But how much of that is really going to pan out depends on how practical the tech needed is and how interested consumers are in spending even more of their lives online.

To avoid trades based on empty hype, here are a few tips to hone your hype detector and spot the most realistic growth opportunities:

  • Metaverse applications for gaming are the most likely to see near-term growth as in-game purchasing, live streaming and e-sports are already in a high-growth phase2.
  • E-commerce applications like Amazon’s Room Decorator — an augmented reality tool that lets shoppers see what products will look like in their space — are already here and could see rapid adoption3 because most of it can be done with existing tech and for a relatively low cost.
  • Virtual reality tech (at least outside of its gaming applications) could still be a few years away because any tech breakthroughs will likely still be too expensive for widespread adoption.
  • Social and work applications are likewise going to be slow to take off because major issues around privacy and toxicity on social platforms need to be resolved before people (and workplaces) are going to be comfortable moving those parts of their lives online.

3. Don’t Forget Amazon Web Services

A lot of the attention on Amazon is focused on its retail side. But it’s the e-commerce giant’s cloud computing service (Amazon Web Services) that’s actually carrying the company these days. While its operating income fell nearly 50% to $3.5 billion, the company would have been reporting losses right now if it weren’t for AWS4, which brought in $5.3 billion in operating income, more than compensating for the $1.8 billion in operating losses on Amazon’s retail side.

Any major headlines warning of Amazon’s decline may need to be weighed against its rapidly growing and market-dominating cloud-computing branch before you make any trade decisions.

4. Look Out For Growth Opportunities Across Different Tech Sectors

While the tech space took a hit, there might still be room for growth in an industry that remains comparatively young.

Video streaming, for example, has barely scratched the surface of a global addressable market estimated at 1.7 billion households5. So even Netflix’s large scale loss of subscribers is not necessarily a sign that streaming has hit its peak.

Competition in the space is heating up, and all streaming providers are struggling with low customer retention rates but many adaptations are possible — like bundling other entertainment services in, offering tiered subscriptions or bringing in advertising.

Social media shopping has also been quietly growing and is poised to take off soon with Instagram offering “shoppable” stories6 and TikTok integrating seamless purchasing7.

How To Trade These High-Growth Stocks During An Intermittent Recovery?

With new investments and acquisitions poised to generate new revenue streams in the next two quarters, there could be enough tailwinds to push some of these stocks into recovery. One way to trade possible recoveries without trying to bet on which specific stocks will rebound first is by using a FANG index.

Direxion’s Daily Select Large Caps & FANGs Bull 2X ETF (FNGG), for example, seeks daily investment results, before fees and expenses, of 200% of the performance of the ICE FANG 20 Index. That’s an equal-weighted index featuring all of the FANG stocks along with other large-cap stocks in the tech space. As of 5/31/2022, the top 10 holdings by weight are:

  1. Crowdstrike Holdings Inc. CRWD – 6.67%
  2. Tesla Inc. TSLA – 6.10%
  3. Nvidia Corp. NVDA – 5.91%
  4. Snap Inc. SNAP – 5.87%
  5. Amazon.com Inc. AMZN – 5.78%
  6. Datadog Inc. DDOG – 5.50%
  7. Alphabet Inc. GOOGL – CI A – 5.45%
  8. Apple Inc. AAPL – 5.30%
  9. Microsoft Corp. MSFT – 5.26%
  10. Advanced Micro Devices Inc. AMD – 5.08%

With two times leverage, Direxion’s exchange-traded fund (ETF) lets you trade this index with 200% daily magnification on your returns. However, that would magnify losses as well as gains, so it’s crucial to go in with a short-term strategy with such leveraged ETFs.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

 

Sources:

  1. https://kalkinemedia.com/us/news/stock-market/how-soon-will-faang-stocks-see-a-bull-run
  2. https://www.prnewswire.com/news-releases/global-live-streaming-markets-2021-2022--2028-surging-popularity-of-e-sports-and-video-games--growing-preference-for-live-streamed-content-301520765.html
  3. https://www.forbes.com/sites/theyec/2022/01/24/how-the-metaverse-will-reshape-e-commerce-forever/?sh=7ea627d269d9
  4. https://www.investopedia.com/how-amazon-makes-money-4587523
  5. https://www.fool.com/investing/2022/04/30/3-top-faang-stocks-to-buy-after-earnings/
  6. https://business.instagram.com/blog/announcing-shopping-in-instagram-stories-and-explore
  7. https://www.yahoo.com/video/tiktok-shopping-now-official-151523689.html

 

 

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.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing.  A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares.  To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com.  A Fund’s prospectus and summary prospectus should be read carefully before investing.

Neither Rafferty nor the Fund is sponsored, endorsed, sold or promoted by Interactive Data Pricing and Reference Data, LLC or its affiliates (“Vendor”). Vendor makes no representation or warranty regarding the advisability of investing in securities generally, in the Fund particularly, or the ability of the ICE FANG 20 Index to track general financial market performance. VENDOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE ICE INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL VENDOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. The Fund is non-diversified and include risks associated with the Fund's concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Index Correlation Risk, and Other Investment Companies (including ETFs) Risk. The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation, and competition, both domestically and internationally, including competition from competitors with lower production costs. The communication services sector may be dominated by a small number of companies which may lead to additional volatility in the sector. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

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This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

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