Tech Tests Could Be Timely For These ETFs

Some of the big-name technology companies, including Microsoft Corporation MSFT, have already delivered quarterly earnings, but the high-flying sector is set to experience an earnings avalanche during the week starting April 29.

What Happened

Next week, nearly 47 percent of the members of the Technology Select Sector Index (IXTTR) step into the earnings confessional. For active traders, next week could be the ideal time to consider leveraged exchange traded funds, such as the Direxion Daily Technology Bull 3X Shares TECL and the Direxion Daily Technology Bear 3X Shares TECS.

TECL tries to deliver triple the daily returns of the Technology Select Sector Index while the bearish TECS attempts to deliver triple the daily inverse returns of that index.

Why It's Important

Thus far, technology has been an important contributor to the positive earnings surprises by S&P 500 companies.

“However, it is interesting to note that the S&P 500 is currently outperforming the 5-year averages in terms of actual earnings relative to estimated earnings,” according to FactSet. “To date (April 23), 78% of S&P 500 companies are reporting actual EPS above estimated EPS, which is above the 5-year average of 72%. S&P 500 companies are beating EPS estimates by 5.7%, which is also above the 5-year average of 4.8%.  If these trends continue, the earnings growth rate should increase by more than the 3.7 percentage point average, which could result in the index reporting actual year-over-year growth in earnings for the quarter.”

Although the technology sector is about to experience one of its busiest earnings weeks of the year, TECL and TECS have been docile. During the days leading up to April 25, there were no unusual volume spikes in TECL or the bearish TECS, nor were the any major entries into or departures from the leveraged tech funds, according to Direxion data.

What's Next

With Microsoft's report in the books, the big test for TECL and TECS comes April 30 when Apple Inc. AAPL, 17 percent of the Technology Select Sector Index, reports earnings after the close of U.S. markets. Apple's penchant for sizable post-earnings moves could lead to increased activity next week in TECL and TECS.

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