Traders are in a chess match with the Federal Reserve, wondering what its next move will be that will affect the latest market moves, particularly when it comes to technology stocks.
The latest market volatility might make risk-averse investors squeamish, but it certainly opens up opportunities for traders to capitalize on potential profits. Right now, monetary policy is on the agenda with traders wondering if the Fed will be more or less hawkish than anticipated.
Right now, that’s adding a degree of push-pull within the big tech equities. The spike in volatility in the Nasdaq 100 is apparent with its volatility index spiking 70% so far this year.
“At the December FOMC meeting, policymakers at the Federal Reserve moved to cut back on the extraordinary monetary stimulus at a faster pace than previously announced,” Direxion Investments notes in a short-term outlook report. “They also indicated interest rates may rise sooner than expected. The market took comfort in the clarity offered on what the Federal Reserve would do to combat inflation as opposed to the draining of liquidity.”
“If the Fed moves quicker than expected, high flying tech shares will likely get hit as seen in the last couple of weeks,” Direxion says. “If there is more bark than bite, which the market is expecting as of now, tech and all its brethren, especially cloud and software names, will find support.”
2 Ways to Play the Move
Traders sensing a bounce in big tech can look to the Direxion Daily Technology Bull 3X ETF (TECL). With its triple leverage, TECL seeks daily investment results of 300% of the daily performance of the Technology Select Sector Index.
The fund invests at least 80% of its net assets in financial instruments, such as swap agreements and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index includes domestic companies within the technology sector.
Conversely, traders looking for more bearishness in tech can play the Direxion Daily Technology Bear 3X ETF (TECS), which does the opposite of TECL by seeking daily investment results, before fees and expenses, equal to 300% of the inverse (or opposite) of the daily performance of the Technology Select Sector Index.
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