SOCL Looks Attractive Ahead of Snap IPO

With Snap Inc (SNAP) headed toward a strong IPO, SOCL and social media stocks could benefit

Mar 2, 2017 at 11:18 AM
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With Wall Street's attention fixed on the Snap Inc (NYSE:SNAP) initial public offering (IPO), traders may want to take a second look at the Global X Social Media ETF (SOCL). The exchange-traded fund (ETF) has been a strong performer of late, and it appears the shares could have some gas left in the tank.

Starting on the charts, SOCL took a sharp bounce off its 200-day moving average around the turn of the calendar year, and has been on fire since. Despite being down 1.2% at $24.26, the social media shares have surged more than 12% in 2017, nearly doubling the percentage gain of the broader stock market. Even more impressive, the ETF boasts a 36.4% year-over-year lead.

Looking more closely, it appears SOCL could benefit from multiple layers of technical support. Most clearly, the 20-day moving average has been ushering the shares higher since January. In addition, the ETF is consolidating atop the 61.8% Fibonacci retracement of its late-2016 decline, as pictured below.

social media etf chart fibonacci retracement levels

Drilling down even further, our internal Sector Scorecard reveals that roughly two-thirds of the social media stocks we follow are above their 80-day moving averages, hinting at technical strength. Moreover, within that group, the average year-over-year stock return is a mind-bending 61.6%. Yet, the percentage of analyst "buy" ratings has actually decreased over the past 12 months, while short interest on the average stock rests at a still-considerable 6.2% of its float.

From a contrarian perspective, a round of upgrades and/or short-covering activity among these component stocks could translate into more gains for Global X Social Media ETF (SOCL). Not to mention, a successful Snapchat IPO -- which is looking likely, as the offering is reportedly 12 times oversubscribed -- could create tailwinds for the broader sector.

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