Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. 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 and inverse ETFs are not for you.
Google’s parent company, Alphabet Inc. (NASDAQ: GOOGL (Class A Shares), GOOG (Class C Shares)) is down over 40% year-to-date (as of 11/3/22), having missed consensus analyst earnings-per-share (EPS)* estimates for two consecutive quarters.
However, Alphabet Inc. (referred to throughout this article as Google) is still pursuing growth. The company recently acquired cybersecurity firm Mandiant for $5.4 million and unveiled its new Pixel 7 smartphone and Pixel watch.
Notably, the company also initiated a buyback of $15.19 billion of its stock over the second quarter of 2022, in addition to a 20-for-1 stock split in July.
The question now is: where is Alphabet Inc.’s share price headed over the next quarter? For bulls and bears alike, we believe there will be ample trading opportunities afoot.
Google: Search for Earnings
Trading volume and volatility for Alphabet Inc. tends to surge around its quarterly earnings reports. Although not yet confirmed, the next date is expected to be around February 7, 2023 based on previous calls. Key figures to watch for the next quarter include:
- How advertising revenue from YouTube will fare versus this quarter’s slowdown in growth. Marketers are expected to cut spending to deal with inflationary and recessionary pressures.
- How revenue from Google Cloud will fare after this quarter posted slower than anticipated growth. Continued declines in growth may spark strong price action given that Cloud is a primary business line.
- Whether or not continued strong surges in the value of the US dollar will impact revenue growth rates from international sources. A stronger U.S. dollar may lower short-term earnings growth.
Google: Alphabet’s Stock, FOMC, December 13th.
As leading constituents in the S&P 500® Index* and NASDAQ 100® Index* by market capitalization, Alphabet Inc.’s two classes of shares are heavily influenced by external factors. Future events include:
- The next U.S. Consumer Price Index (CPI)* release on November 10th for the month of October. Previously, stocks including Alphabet Inc. sold off after September’s figures came in at a surprise increase of 0.4% for a year-over-year increase of 8.2%.
- The Federal Open Market Committee (FOMC) will meet again on December 13 – 14. On November 2, Chairman Jerome Powell hiked interest rates by 75 basis points* (0.75%) for the fourth time in a row. Despite hints that rate hikes would slow in the future, GOOGL shares slid by -3.87% to end the trading
Google: Leveraged Trades with Direxion ETFs
GGLL seeks daily investment results, before fees and expenses, of 150% of the performance of the Class A shares of Alphabet Inc. (GOOGL) for a single day, while GGLS seeks daily investment results, before fees and expenses, of 100% of the inverse of the performance of GOOGL for a single day.
Traders with a bullish outlook may want to buy GGLL to go long if they think GOOGL will outperform in the short-term. Conversely, traders with a bearish outlook may want to buy GGLS to go short if they think GOOGL will underperform in the short-term.
It is important to note that the Funds do not invest directly in GOOGL. Traders must understand that that the leverage target is daily and should not be expected to track the underlying stock’s performance over longer holding periods.
A strategy that employs GGLL or GGLS to trade around GOOGL’s next earnings report or during high-impact economic releases could be a way to speculate on an upward price move, express a short thesis, or hedge a long position against a downturn.
Investing in the funds involves a high degree of risk. Unlike traditional ETFs, or even other leveraged and/or inverse ETFs, these leveraged and/or inverse single-stock ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification. 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 stock’s performance over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments. The Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Bull Fund will lose money even if the underlying stock’s performance increases, and the Bear Fund will lose money even if the underlying stock’s performance decreases, over a period longer than a single day. An investor could lose the full principal value of his or her investment in a single day.
- Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value.
- Option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.
- Margin is the collateral that a holder of a financial instrument has to deposit with a counterparty to cover some or all of the credit risk the holder poses for the counterparty.
- S&P 500® Index: Standard & Poor’s ® selects the stocks comprising the S&P 500 ® Index on the basis of market capitalization, financial viability of the company and the public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index. One cannot directly invest in an index.
- Nasdaq-100® Index: The Index includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Market ® based on market capitalization. All companies listed on the index have an average daily trading volume of at least 200,000 shares. One cannot directly invest in an index.
- A basis point is one hundredth of 1 percentage point
- The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
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 www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Technology Sector Risk – The market prices of technology-related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel.
Alphabet Inc. Class A Investing Risk – As of the date of this prospectus, in addition to the risks associated with companies in the information technology sector, Alphabet Inc.’s Class A shares face risks associated with reliance on advertising revenue and the effect that loss of partners or new and existing technologies that block advertisements online may have on its business; intense competition for its products and services across different industries; investments in new businesses, products, services and technologies that may divert management attention or harm its financial condition or operating results; slowdowns in its revenue growth rate; the ability to protect its intellectual property rights; the ability to maintain or enhance its brands and its impact on the ability to expand its user base, advertisers, customers, content providers and other partners; manufacturing and supply chain issues; interruptions to, or interferences with, its complex information technology and communication systems; its international operations; failure to evolve with the advancement of technology and user preferences; data privacy and security concerns; regulatory, and legal and litigation issues.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund’s investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund’s other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Leverage Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Daily Correlation/Tracking Risk, Alphabet Inc. Class A Investing Risk, Single Security Risk, Market Risk, Indirect Investment Risk, Trading Halt Risk, and risks specific to the technology sector.
Additional risks include, for the Direxion Daily GOOGL Bear 1X Shares, risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
Distributor: Foreside Fund Services, LLC.