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Facebook, Alphabet Earnings Equal Big Week For These Geared ETFs

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Facebook, Alphabet Earnings Equal Big Week For These Geared ETFs

Earnings season rolls along this week with more marquee growth names delivering results, including some big names from the communications services sector.

What Happened

After technology, communication services is one of the better-performing sectors this year and a pair of big earnings reports could set the stage for traders to capitalize with leveraged exchange traded funds tracking the sector. Facebook (NASDAQ: FB) reports on Wednesday followed by Google parent Alphabet (NASDAQ: GOOG) on Thursday.

That's enough to put the Direxion Daily Communication Services Index Bull 3X Shares (NYSE: TAWK) and the Direxion Daily Communication Services Index Bear 3X Shares (NYSE: MUTE) in the earnings spotlight this week.

Why It's Important

The bullish TAWK attempts to deliver triple the daily returns of the Communication Services Select Sector Index while the bearish MUTE tries to deliver triple the daily inverse returns of that benchmark.

Tracking the Communication Services Select Sector Index makes TAWK and MUTE relevant as Facebook and Alphabet earnings plays because that index allocates over 44% of its weight to Facebook and the two shares classes of the Google parent.

“With 2.5 billion monthly active users, Facebook holds the title of being the largest social network in the world,” said Morningstar in a recent note. “Their scope continues to grow as the wide-moat company provides more features and apps to keep users engaged in the Facebook experience. The coronavirus’ hit to digital ad sales was softer than expected, and we predict digital ad spending to increase during the second half of the year.”

What's Next

Alone, Facebook represents over 21% of the Communication Services Select Sector Index, but when combining the two shares classes of Alphabet, that percentage is north of 23%, meaning that Thursday earnings report should be significant for TAWK and MUTE.

“As the dominant search engine, we believe Google will continue its reign in the online search market,” according to Morningstar. “The firm’s name and cash flows grow stronger as more users engage and more advertisers seek to use Google’s online ad space. Digital ads have withstood the coronavirus better than others, and we expect Google to attract more advertisers.”

Should both Facebook and Alphabet provided gloomy commentary on internet advertising trends, the bearish MUTE could be the play, but if both saying spending on that front for the back half of 2020, the bullish TAWK could be the way to go.

 

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Posted-In: Earnings Long Ideas News Sector ETFs Short Ideas Specialty ETFs Trading Ideas ETFs