Time for internet stocks to shine?
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Internet stocks haven’t had it easy lately. They took it on the chin in December, falling in sympathy with other tech stocks. But in recent weeks, the shares of these companies have come back to life. Surely no one asks that Internet stocks party like it’s 1999 but at this level, could a decent short-term rally be within reach?
Source: StockCharts.com, January 10, 2023.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific time period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and the principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; actual performance may be lower or higher than stated performance. For the most recent month-end performance, visit Direxion.com/etfs. For standardized performance Click here.
Internet stocks: all large
To some traders, internet stocks may recall the blistering IPOs (initial public offerings)* of the dot.com bubble, but the constituents of the current Dow Jones Composite Internet Index* are actually more of the household name variety. For example, Amazon.com, Inc. (NASDAQ: AMZN) [9.22%]Meta Platforms, Inc. (NASDAQ: META) [6.17%]Class A Alphabet Inc. (NASDAQ:GOOGL) [5.03]and Salesforce, Inc. (NYSE: CRM) [4.88%] are the five main constituents of this index (at 12/31/22). Other large companies in the index include PayPal Holdings, Inc. (NASDAQ: PYPL) [4.11%] and AirBnB, Inc. (NASDAQ: ABNB) [2.95%] so we’re not exactly talking about small caps here.
Aspiring to Gains: Possible Upcoming Trading Catalysts
Traders playing the bullish or bearish side of internet stocks may want to keep an eye out for upcoming earnings releases that can trigger large one-day swings in these already volatile stocks. Not only will these reports potentially move the stocks of the companies in question, but they can also set the tone for the industry as a whole.
Here are a few things to watch out for:
Amazon.com, Inc.: The juggernaut led by Jeff Bezos seems ready to report Fourth quarter 2022 results on February 2. The consensus earnings per share forecast is $0.17 for the quarter and $0.69 for the year. Having recently laid off thousands of employees, a beat in earnings may give the market hope that the company’s outlook is better than the cost-cutting suggested.
Cisco Systems, Inc. (NASDAQ: CSCO): The digital communications conglomerate will declare your income around February 15. For the quarter, the market expects earnings of $0.76 per share. It’s worth noting that Cisco easily beat analysts’ expectations in the prior quarter, so a “repeated beat” should be music to the bulls’ ears.
Meta Platforms, Inc.: Unlike Cisco, Meta disappointed investors last quarter. The plummeting company missed market earnings forecasts and investors punished the stock with a more than 20% one-day drop in late November 2022. Currently, the consensus estimate is $2.25/share , and the release is scheduled for February 1st. Whether the company beats or misses here will speak volumes about its own efforts to cut costs, as well as the state of advertising on Facebook and Instagram.
Source: StockCharts.com, January 11, 2023.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific time period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
Performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and the principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; actual performance may be lower or higher than stated performance. For the most recent month-end performance, visit Direxion.com/etfs. For standardized performance Click here.
Back to the mean, or more pain to come?
2022 has not been kind to investors in internet stocks or growth stocks in general for that matter. The Dow Jones Composite Internet Index fell sharply in the first half of the year and stalled in the third and fourth quarters.
If you’re a bull with a half-full mindset, mean reversion is probably a priority, especially given the dominance of growth and tech stocks for so many years before 2022. Even the fact of Retracing half of last year’s losses could produce serious upside potential for those on the long side. Technical traders will be watching the 625 level of the index, which has been a tough ceiling to break since October.
How to play the long side
Adventurous risk-seeking traders can capture the upside potential of internet stocks with the Direxion Daily Dow Jones Internet Bull 3X Shares (WEBL)which targets daily investment results, before fees and expenses, of 300% of the performance of the Dow Jones Internet Composite Index.
For the bears, a break of the November lows around 525 could open the door to further selling if the bulls throw in the towel at this logical level. Remember: While 2022 has been tough for internet stocks, there is no law that says mean reversion has to happen.
How to play the short side
Traders looking to take advantage of a potential drop in Internet stocks can play with the Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS)which targets daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the Dow Jones Internet Composite Index.
Initially published January 24, 2023.
For more news, information and analysis, visit the Leveraged Channel and Reverse Channel.
*Definitions
– An initial public offering (IPO) or share launch is a public offering in which the shares of a company are sold to institutional investors and usually also to retail investors. An IPO is usually underwritten by one or more investment banks, who also arrange for the listing of shares on one or more stock exchanges.
– The Dow Jones Internet Composite Index (DJINETT) is provided by S&P Dow Jones Indices and includes companies that generate at least 50% of their annual sales/revenue from the Internet, as determined by the index provider. Additionally, each stock must have a trading history of at least three months and an average market capitalization of at least $100 million over three months. The index is made up of 40 stocks from two different sectors, internet commerce and internet services.
You cannot invest directly in an index.
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Direxion shares the risks – An investment in each Sub-Fund involves risks, including the possible loss of principal. Each Sub-Fund is non-diversified and involves risks associated with the concentration of the Sub-Funds’ investments in a particular industry, sector or geographical area, which may increase volatility. The use of derivatives such as futures and swaps is subject to market risks which may cause their price to fluctuate over time. The risks of each Fund include the effects of market capitalization and volatility risk, leverage risk, market risk, counterparty risk, rebalancing risk, intraday investment risk, related to other investment companies (including ETFs) and risks specific to the information technology sector and the Internet. Business industry. Market prices of Internet securities tend to have a higher degree of market risk and large price fluctuations than other types of securities, as these securities can quickly fall out of favor with investors, which can result in a sudden sell-off. and a dramatic drop in market prices. Additional risks include, for Direxion Daily Dow Jones Internet Bull 3X Shares, Daily Index Correlation Risk and for Direxion Daily Dow Jones Internet Bear 3X Shares, Short and Cash Trading Risk, and inverse correlation risk with the daily index. Please see the summary and full prospectus for a more complete description of these and other risks of each Sub-Fund.
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