Earnings season is in full swing, and it could present a major challenge to one group of stocks: high-momentum growth names.
"They're definitely in for a test right here. What we've seen over the course of the last eight to 10 weeks is a lot of volatility," Danielle Shay, director of options at Simpler Trading, said on CNBC's "Trading Nation" on Tuesday.
"Right here, this is the moment in time where the high-growth stocks have the opportunity to say, 'Hey, guess what, we're still going strong, we have quarter-over-quarter growth, we have forward guidance,'" Shay said.
After leading markets in the past six months, the MTUM momentum ETF has taken a back foot in October. The ETF, which holds Salesforce and PayPal among its top holdings, is down 1% this month, while the S&P 500 has added 0.5%.
"What we've seen over the past couple weeks where they've gotten a little beat down, it wasn't really necessary, and they're still strong," said Shay.
Heading into the thick of earnings, Shay is betting on the growth names that have shaken off volatility to hold strong in the past two months.
"For the relative strength names that I like the most — which are going to be Google, Microsoft, Amazon, and then a lot of the semiconductor companies — I'm definitely going to trade them long going into the report," said Shay.
"These companies have to perform. If they cannot perform and if we get negative earnings, and the stock market does not like that, look at what happened last October. Last October — and you had a lot of these FANG names reporting, investors didn't like it — the market went into bear market territory," said Shay.
If the high-momentum growth stocks such as the FANG names, Facebook, Amazon, Netflix and Alphabet, can beat on the top and bottom line, Shay adds that that could carry the market to new all-time highs.