The tech sector has been leading the stock market higher
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.
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.
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.