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Alphabet is Googling for Direction. Which Way Will it Break?

September 26, 2022

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.

Alphabet Inc. (Ticker: GOOGL) may not be a household name yet, but perhaps you’ve heard of its subsidiary. Does Google ring a bell? Jokes aside, there’s a good chance that you happened upon this blog post using Alphabet’s well-known search engine. But this is a trading blog, so chances are you’re far more interested in whether the stock is a buy or a sell right now. Of course that prediction – or trade - is for you to make.

We’ll present both sides and let you make up your own mind. What we can say with some conviction, however, is that Alphabet does appear to be at a make-or-break juncture. Just take a gander at the chart below. There was a massive run-up into late 2021, then a big decline along with the broader market into June. Since then, the stock has been consolidating between roughly 103 on the downside and 120 or so on the upside. As we write, some see it threatening to break out of this trading range. But which way?

Source: Stockcharts.com, September 16, 2022

The performance data quoted represents past performance. Past performance does not guarantee future results. The Funds (noted below) do not invest directly in GOOGL.  They seek daily goals and should not be expected to track the underlying stock’s performance over periods longer than one day. 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. 

The Bull Case

Bears are frothing at the possibility that the mighty GOOGL breaks down harder than a car whose warranty recently expired. But sometimes it’s darkest just before the light.  So here are some possible catalysts for a reversal in the stock:

  • Earnings are slated to be reported on October 25. Anticipation of a beat, plus an actual beat, could send the bears fleeing and GOOGL ripping.
  • Treasury yields decline. There’s been an inverse relationship between 10-year yields and tech stocks. This is predicated on the belief that higher long-term rates weigh on valuations of high-growth companies like GOOGL. Maybe the 10-year yield turns around here, giving GOOGL fuel for a rally.

Traders who think the lows will hold and GOOGL will rally can play it with the Direxion Daily GOOGL Bull 1.5X Shares (GGLL). This Single Stock Daily Leveraged ETF seeks daily investment results, before fees and expenses, of 150% of the performance of the Class A shares of GOOGL.

The Bear Case

  • Who’s to say earnings will beat expectations? The economy is slowing, and that has to be weighing on GOOGL. If you think we’re heading for a recession, it’s difficult to be bullish on tech for the short term. Again, earnings are slated to be reported on October 25.
  • Anti-trust concerns. Alphabet just lost a big − as in $4 billion big − EU antitrust decision. And more pain could be on the way; there’s a proposed bill in Congress that would harm its business. The American Innovation and Choice Online Act (AICOA) would prevent big tech from giving preference to its own products in search engines. It would also sharply curtail how customer data is used. GOOGL and others have spent boatloads of money lobbying against the bill, so needless to say, its passage would be painful for them.

Traders who think the lows are destined to be broken shortly can express their bearish view with the Direxion Daily GOOGL Bear 1X Shares (GGLS). GGLS seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the Class A shares of GOOGL.

Direxion Single Stock Daily Leveraged & Inverse ETFs allow sophisticated traders to get magnified or inverse exposure to popular individual securities, in order to seek profit or hedge risk, regardless of market direction.

The targeted underlying securities were chosen because they are well established, with high market capitalization, and are heavily traded.

Other Single Stock Leveraged Equity Plays

Direxion offers other inverse and leveraged funds for other market-moving equities as well.  These funds include Tesla Inc. (Ticker: TSLA), Apple Inc. (Ticker: AAPL), Microsoft Corporation (Ticker: MSFT), and Amazon.com, Inc. (Ticker: AMZN).

The Daily TSLA Bull 1.5X Shares (Ticker: TSLL) seeks daily investment results, before fees and expenses, of 150% of the performance of the common shares of TSLA, while the Daily TSLA Bear 1X Shares (Ticker: TSLS) seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the common shares of TSLA.

The Daily AAPL Bull 1.5X Shares (Ticker: AAPU) seeks daily investment results, before fees and expenses, of 150% of the performance of the common shares of AAPL, while the Daily AAPL Bear 1X Shares (Ticker: AAPD) seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the common shares of AAPL.

The Daily MSFT Bull 1.5X Shares (Ticker: MSFU) seeks daily investment results, before fees and expenses, of 150% of the performance of the common shares of MSFT, while the Daily MSFT Bear 1X Shares (Ticker: MSFD) seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the common shares of MSFT. The Daily AMZN Bull 1.5X Shares (Ticker: AMZU) seeks daily investment results, before fees and expenses, of 150% of the performance of the common shares of AMZN, while the Daily AMZN Bear 1X Shares (Ticker: AMZD) seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the common shares of AMZN.

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. Single Stock Daily Leveraged & 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 individual security 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.

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.

TSLL/TSLS Specific Risks: TSLA Trading Risk  -- The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

Tesla, Inc. Investing Risk  -- The future growth and success of Tesla, Inc. are dependent upon consumers' demand for electric vehicles, and specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles in general and Tesla, Inc. vehicles does not develop as Tesla, Inc. expects, develops more slowly than it expects, or if demand for its vehicles decreases in our markets or our vehicles compete with each other, the business, prospects, financial condition and operating results of Tesla, Inc. may be harmed. Tesla, Inc. may fail to meet its publicly announced guidelines or other expectations about its business, which could cause the price of TSLA to decline significantly.

Automotive Companies Risk  -- The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating losses. Automotive companies can be significantly affected by labor relations, fluctuating component prices and supplier disruptions.

AAPU/AAPD Specific Risks: 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. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies are also heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely impact a company's profitability.

Apple, Inc. Investing Risk  -- In addition to the risks associated with companies in the technology sector, Apple Inc. faces risks related to the impacts from the COVID-19 pandemic; managing the frequent introductions and transitions of products and services; the outsourced manufacturing and logistical services provided by partners, many of which are located outside of the United States. Issuer-specific attributes may cause an investment held by the Fund to be more volatile than the market generally. The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.

AMZU/AMZD Specific Risks: Consumer Discretionary Sector Risk  − Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, including the functioning of the global supply chain, interest rates, competition and consumer confidence.

Amazon.com, Inc. Investing Risk  - Amazon.com, Inc. faces risks associated with intense competition across different industries, including physical, e-commerce omnichannel retail, e-commerce services, web and infrastructure computing services, electronic devices, digital content, advertising, grocery, and transportation and logistics services; the expansion into new products, services, technologies and geographic regions; its international activities; the variability in the demand for its products and services; intellectual property rights; risks relating to successfully optimizing and operating its fulfilment network and data centers; data loss or other security breaches; maintaining key senior management personnel and the ability to hire and retain highly skilled and other key personnel; maintaining good supplier relationships, including content and technology licensors; the success of acquisitions or joint ventures or other investments; its rapidly evolving and expanding business model; and legal, regulatory and litigation issues.

TSLL/TSLS Specific Risks: TSLA Trading Risk  − The trading price of TSLA has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

Tesla, Inc. Investing Risk  − The future growth and success of Tesla, Inc. are dependent upon consumers' demand for electric vehicles, and specifically, its vehicles in an automotive industry that is generally competitive, cyclical and volatile. If the market for electric vehicles in general and Tesla, Inc. vehicles does not develop as Tesla, Inc. expects, develops more slowly than it expects, or if demand for its vehicles decreases in our markets or our vehicles compete with each other, the business, prospects, financial condition and operating results of Tesla, Inc. may be harmed. Tesla, Inc. may fail to meet its publicly announced guidelines or other expectations about its business, which could cause the price of TSLA to decline significantly.

Automotive Companies Risk − The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating losses. Automotive companies can be significantly affected by labor relations, fluctuating component prices and supplier disruptions.

AAPU/AAPD Specific Risks: 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. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies are also heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely impact a company's profitability.

Apple, Inc. Investing Risk  − In addition to the risks associated with companies in the technology sector, Apple Inc. faces risks related to the impacts from theCOVID-19 pandemic; managing the frequent introductions and transitions of products and services; the outsourced manufacturing and logistical services provided by partners, many of which are located outside of the United States. Issuer-specific attributes may cause an investment held by the Fund to be more volatile than the market generally. The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.

AMZU/AMZD Specific Risks: Consumer Discretionary Sector Risk  -Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, including the functioning of the global supply chain, interest rates, competition and consumer confidence.

Amazon.com, Inc. Investing Risk  - Amazon.com, Inc. faces risks associated with intense competition across different industries, including physical, e-commerce omnichannel retail, e-commerce services, web and infrastructure computing services, electronic devices, digital content, advertising, grocery, and transportation and logistics services; the expansion into new products, services, technologies and geographic regions; its international activities; the variability in the demand for its products and services; intellectual property rights; risks relating to successfully optimizing and operating its fulfilment network and data centers; data loss or other security breaches; maintaining key senior management personnel and the ability to hire and retain highly skilled and other key personnel; maintaining good supplier relationships, including content and technology licensors; the success of acquisitions or joint ventures or other investments; its rapidly evolving and expanding business model; and legal, regulatory and litigation issues.

GGLL/GGLS Specific Risks: 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.

Distributor: Foreside Fund Services, LLC.