Social Media Stocks Could Be a High-Risk, High-Reward Bet Amid the Iran War Based on This Chart

It is always darkest before dawn. And when I look at what’s happened to social media stocks, as judged by the Global X Social Media ETF (SOCL), I have two reactions.

1. Wow, that ETFs is down a ton. About 30% since last September.

2. That could make for an interesting “nibble” on the way to a larger position if all things go well.

I write here frequently about “options.” But this article is about a stock market segment that prompts me to embrace “optionality.” Which in this case, has nothing to do with options.

By optionality, I’m talking about how I often buy new stock and ETF positions. I start with a small allocation as a percentage of my portfolio, then add more. And if I decide I really have something, and want to press it, I will take an appreciated position and add to it. This type of scaling in (and out) of holdings is why you don’t hear me talking “buy/sell/hold” about a security.

So in the case of SOCL, there’s at least a fighting chance for a rally, following its decline to a price level just above where it stood way back in early 2018. And exactly where it was coming out of the pandemic in mid-2020.

Below, we see the daily chart, which indicates to me that SOCL is near familiar bottoming territory, in this $42-$45 price range. The 20-day moving average just turned positive for the first time since very early this year. Note, however, that rally was ill-fated.

This highlights one of the features of my ROAR Score indicator for ETFs and stocks that I don’t write about much. SOCL is a good example of what happens both before an ETF resumes a sustained plunge… or, right before it bottoms. That ROAR Score of 10 implies that risk is high. But then so is the return potential.

Unlike a higher ROAR Score, the return we seek is accompanied by very high risk. Of note, the chart looked just like this last May, when it was just starting to recover from “Liberation Day” tariff announcements.

When the Iran War broke out in late February, fear was that a prolonged regional battle would trigger a massive retreat from high-multiple growth stocks as investors scrambled for the safety of defense and energy. But as we cross the mid-April threshold, the social media landscape has proven to be far more resilient — and far more complicated — than the early war-room projections suggested. While the broader tech indexes have struggled with the energy-led margin squeeze, SOCL has managed to maintain a precarious balance between a global advertising recovery and the persistent threat of geopolitical censorship.

The primary driver for SOCL right now is the massive divergence between its domestic and international components. While U.S. giants like Meta Platforms (META) and Alphabet (GOOG) (GOOGL) have benefited from a flight to quality and robust digital ad spending, the international holdings — which make up over half the fund — are facing a much steeper climb.

Companies based outside the U.S. are navigating a landscape where regional instability often translates into immediate regulatory crackdowns. The war has effectively split the social media world into two distinct halves: the Western platforms that serve as the world’s primary news and propaganda hubs, and the Asian platforms that are increasingly focused on domestic consumption and state-mandated stability.

There’s also the growing threat of specialized platforms that have started to cannibalize the growth of the legacy giants. The inclusion of stocks like Reddit (RDDT) and the ongoing speculation around niche platforms have introduced a new layer of volatility to the ETF.

SOCL is similar to many ETFs I track in that it is top-heavy. As I see it, what’s the point of owning an ETF for 10% of your portfolio if its positions within that 10% are not big enough to matter. I call that the “ETF as stock surrogate” approach to investing. So the fact that only 6 stocks make up 45% of SOCL, I say “good!” That is a non-consensus view for sure.

Ultimately, SOCL remains a tactical satellite for the investor who believes that digital connection is much more than a fad. It is instead now a necessity, no different than TV and radio were for the prior generation. That helps these stocks survive any geopolitical storm.

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.

On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com