History Says to Buy These 2 FAANG Stocks Right Now

Both FB and GOOGL are headed for historically bullish periods

Aug 29, 2018 at 1:08 PM
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The tech sector has been on a tear recently, with the Nasdaq Composite (IXIC) pacing for a more than 5.5% positive August return -- and fresh off a new record intraday peak of 8,101.87. Surging FAANG stocks have helped create tailwinds for the broader sector, and if history is any guide, social media name Facebook, Inc. (NASDAQ:FB) and Google parent Alphabet Inc (NASDAQ:GOOGL) could be headed even higher in the near term.

Facebook Stock Tends to Rally During Labor Day Week

Facebook stock is down 0.5% today to trade at $174.42, paring its week-to-date gain to 0.4%. After hitting a record high of $218.62 on July 25, the shares took a record-setting slide after the firm's earnings report, but found a foothold atop their 20-month moving average -- a trendline that contained pullbacks in August 2015 and again in March and April. 

FB chart aug 29

If past is precedent, next week could be a positive one for the security, too, considering FB has been one of the best S&P 500 Index (SPX) stocks to own during Labor Day week over the past decade. According to Schaeffer's Senior Quantitative Analyst Rocky White, the security has averaged a return of 3.16% over the four-day period, looking back 10 years, with 83% of those returns positive. Another move of this magnitude would put the equity around $181, based on its current perch.

In the options pits, the weekly 9/7 series appears to be pricing in low volatility expectations compared to its short-term counterparts. Per Trade-Alert, the implied volatility term structure on weekly 9/7 FB options is currently 21.3%, compared to 22.89% for the standard September series and 23.96% for monthly October options.

Alphabet Stock Could Outperform Next Month

Alphabet stock is trading up 1.6% at $1,265.54, after Morgan Stanley -- which also set lofty price target on Amazon (AMZN) -- raised its GOOGL price target to a Street-high $1,515 from $1,325, citing Waymo as a potentially positive catalyst. Separately, Google issued a statement in response to President Donald Trump's accusations of search engine manipulation, saying "Search is not used to set a political agenda and we don’t bias our results toward any political ideology."

After topping out at a record high of $1,291.44 on July 27, GOOGL pulled back to a trendline connecting higher lows since May -- which currently coincides with the security's rising 40-day moving average. History suggests the shares could stage a bigger bounce from here over the next several weeks, considering it's been one of the best SPX stocks to own in September.

googl stock daily chart aug 29

Per White, the equity has averaged a monthly gain of 2.28% over the last 10 Septembers, with 70% of those returns positive. A repeat of history to this degree could have Google stock closing in on $1,300 as it heads into the fourth quarter.

Those wanting to bet on more upside for Alphabet may want to think about a bullishly biased premium-buying strategy. GOOGL stock's Schaeffer's Volatility Index (SVI) of 18% ranks in the 20th annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment.


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