Earnings season is in full swing this week, with many big names reporting their results.
Todd Gordon, founder of TradingAnalysis.com, says there’s a rotation happening that will benefit one group of stocks.
“We’ve seen a rotation out of the defensive sectors such as real estate, staples, and utilities, which were bid up in response to falling bond yields,” Gordon said to CNBC on Tuesday. “What we’ve seen, though, is a rotation into technology which is fairly well progressed as we’re moving into the heart of the earning season. We’re also seeing a resurgence in communications.”
So far this year, communications services and technology sectors have been some of the best performers in the S&P 500, with the XLK Info Tech Sector SPDR up just over 32% and the XLC Communication Sector SPDR up 21%.
“We’re seeing the XLC … sort of trail behind technology and I think they’re about to possibly move into the limelight,” Gordon said.
Gordon is making a trade with the XLC, which tracks names like Facebook (NASDAQ: FB) and Disney (NYSE: DIS), in order to benefit from the rotation. He says communications is the sector to be in as earnings roll in.
Twitter (NYSE: TWTR) and Comcast (NASDAQ: CMCSA) reported Thursday with mixed results. Twitter sank nearly -21% after the social media company delivered a dismal earnings report. While Comcast delivered an earnings beat, reporting earnings per share of $0.79 on revenue of $26.83 billion versus analyst expectations of earnings per share of $0.75 on revenue of $26.77 billion.
“I’d like to keep it simple here and just put an options trade to work in the XLC to capture an upside move,” Gordon said. He’ll be buying an in-the-money all that enables him to buy the XLC ETF at the strike price before expiration.
Gordon is purchasing the $49 call with November 15 expiration for $1.85 per option.