Alphabet Hits All-Time Highs. Place Your Bets…
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.
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. Investing in the Funds is not equivalent to investing directly in GOOGL.
Alphabet Inc. (Ticker: GOOGL), parent company of Google, broke out to record highs at the end of April in the wake of its first-quarter earnings report. The stock’s ascent since early March to over $170 is quite the turnaround from when the stock flirted with a breakdown around $131. It’s also a monster performance (nearly 20% in two months) from a company with a market cap in the trillions.
Ah, but hindsight is 20/20. So, what’s a trader to do now? Ride the momentum higher, or play the short side from some mean reversion? As we’ll discuss, there are compelling arguments on both sides of the trade.
Source: StockCharts.com, May 9, 2024.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific 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.
The performance data quoted represents past performance. Past performance does not guarantee future results.
Buy or Fade New All-Time Highs?
Every investor knows the mantra: buy low, sell high. But traders often see things differently. While there can be times to sell stocks that have ripped higher, some traders try to ride the momentum. And when a stock breaks out to new all-time highs, there aren't previous resistance levels.
Which brings us back to GOOGL. The bulls clearly have the wind at their sails. And there are plenty of catalysts that could send the stock climbing, even from these lofty levels. Here are some to keep an eye on:
- Digital Dominance: GOOGL is a giant in the digital ad revenue world. It accounts for roughly 26% of the market, according to Statista. And incredibly, digital ads are still a growth area for the company. Ad sales in the first quarter hit $61.66 billion vs. $54.55 billion in the same quarter last year. Bulls want to see Google’s customers continue to open their wallets to spend on digital ads.
- Can’t Forget AI: Even though the AI frenzy has cooled somewhat, investors are still attracted to the theme. The good news for GOOGL is that unlike many smaller companies, it has more than enough cash flow to invest in new tools. As it stands, the company is already incorporating AI into both its search engine and most advanced smartphones.
Bears have some ammunition too, though. Take ad spending: Google may be the leader now, but the company has warned that Amazon (Ticker: AMZN) is catching up in this department. If total ad spending slows and Bezos and Co. take a bigger share, that would constitute a nasty one-two punch for Google.
There’s also the regulatory risk hanging over the stock. The Department of Justice recently concluded its case against the search giant for monopolizing the ad market, with a decision expected in late summer or early fall. If investors start to get skittish about the ruling, that could send the stock into a tailspin.
Finally, maybe GOOGL has simply run too far too fast. Even high-flyers need a breather to consolidate their gains or retest the breakout. A pullback may not spell doom for the stock, but it might provide some healthy profits for bears.
Bullish or Bearish, Here’s How to Play GOOGL
Direxion offers two exchange traded funds that allow aggressive traders to wager on where GOOGL is headed in the near-term. For bulls, the Direxion Daily GOOGL Bull 2X Shares (Ticker: GGLL) seeks daily investment results, before fees and expenses, of 200% of the performance of Alphabet Inc. Class A shares. Bears, meanwhile, can profit from any downside with the Direxion Daily GOOGL Bear 1X Shares (Ticker: GGLS), which seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of Alphabet Inc. Class A shares.
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.
The Funds have derived all disclosures contained in this document regarding Class A shares of Alphabet Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Class A shares of Alphabet Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Class A shares of Alphabet Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Class A shares of Alphabet Inc. could affect the value of a Fund’s investments with respect to Class A shares of Alphabet Inc. and therefore the value of the Funds.
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 — 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; investments in new businesses, products, services and technologies that may harm its 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 technology and communication systems; its international operations; failure to evolve with the advancement of technology and user preferences; data privacy and security concerns; problematic content posted by users; and regulatory, 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, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Alphabet Inc. Class A Investing Risk, Market Risk, Industry Concentration Risk, Indirect Investment Risk, Cash Transaction Risk, and risks specific to the technology sector and internet company industry. Additional risks include, for the Direxion Daily GOOGL Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily GOOGL Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.
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