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Tech Wreck Has Traders Getting Cozy With Bearish Chip ETF

March 28, 2018 1:31 pm
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Tech Wreck Has Traders Getting Cozy With Bearish Chip ETF

The tech-heavy Nasdaq 100 has slipped about 10 percent in the last two weeks, and the carnage has not spared even the most hyped up industries within the sector.


The ISE Cyber Security Index is down 6 percent in that time, the ROBO Global Robotics and Automation Index ETF (NYSE:ROBO) is down 7 percent, and the PHLX SOX Semiconductor Sector Index, one of the most widely followed gauges of chip stocks, is down over 10 percent. 

Bearish tidings for semiconductor stocks have some traders visiting the Direxion Daily Semiconductor Bear 3X Shares (NYSE:SOXS). SOXS attempts to deliver triple the daily returns of the PHLX Semiconductor Sector Index. That index is cap-weighted, making SOXS an inverse leveraged daily bet against the largest semiconductor stocks, such as Texas Instruments Inc. (NASDAQ:TXN), Intel Corp. (NASDAQ:INTC) and NVIDIA Corp. (NASDAQ:NVDA).


Declines for chip stocks and the PHLX Semiconductor Sector Index come just days after that benchmark ascended to its highest levels since mid-2000.


Bears Come Calling


While some technical analysts recently waxed bullish on the outlook for some big-name chip stocks, data confirms that traders have been piling into the bearish SOXS. For the 30-day period ended March 23rd, SOXS hauled in an average of $525,657 per day, according to Direxion data.


That was good for one of the best totals among all Direxion inverse leveraged ETFs. SOXS surged nearly 10 percent last Friday on volume that was triple the daily average. Friday's move sent SOXS above its 50-day moving average for the first time in over a month.


Not only have traders been embracing SOXS, but the ETF's bullish counterpart, the Direxion Daily Semiconductor Bull 3X Shares (NYSE:SOXL), has been losing cash. Traders have been pulling more than $909,000 per day from SOXL over the past month, according to Direxion data. SOXL seeks to deliver triple the daily returns of the PHLX Semiconductor Sector Index.


Something To Consider With SOXL


The bullish SOXL plunged 10 percent last Friday, extending its weekly loss to almost 20 percent while serving as a reminder of the pitfalls of holding leveraged ETFs for more than a day. There are, however, reasons to believe short-term traders will be able to benefit from SOXL going forward, including compelling valuations on chip stocks.


“According to data provided by FactSet, the PHLX Semiconductor Index is now trading for 16.1 times consensus earnings estimates for the next 12 months, while the S&P 500 is trading for 17 times estimates,” reports MarketWatch.


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