Cashing In The Chips On Chip ETFs

It is not just Apple AAPL that is being a thorn in the side of the technology sector. Semiconductor stocks are not carry their weight, either. Perhaps chip makers are becoming dead weight.

Now, the lagging semiconductor space could be facing more declines as the widely followed PHLX Semiconductor Index is violating key technical levels. The PHLX Semiconductor Index is the underlying benchmark for the $388.3 million iShares PHLX Semiconductor ETF SOXX, an ETF that has tumbled 5.6 percent over the past month and nearly seven percent this year.

“However, this month, moving averages not only broke several weeks ago but the averages themselves are now crossing each other to the downside. In the chart, the 10-week average plunged through the 20- and 30-week exponential averages and the 20- is on track to cross the 30- as early as next week,” writes Michael Kahn for Barron's in reference to the PHLX Semiconductor Index. 

SOXX is home to 30 stocks, but the ETF is top-heavy with Qualcomm QCOM, Texas Instruments TXN and Dow component Intel INTC combining for over 24 percent of the ETF's weight.

Intel is the real problem of that trio, sliding three percent over the past month. Year-to-date, the stock is down 18.6 percent, making it one of nine Dow stocks down 10 percent or more this year.

Intel's woes explain the struggles of the Market Vectors Semiconductor ETF SMH. That ETF has lost 5.3 percent over the past month, a sign that having a 19.3 percent weight to Intel is, at least in the near-term, not a positive attribute.

Barron's notes that Intel, Texas Instruments, Applied Materials AMAT and Taiwan Semiconductor TSM have recently committed ominous technical violations. Those stocks combine for over 41 percent of SMH and 24 percent of SOXX.

There is a semiconductor ETF that is shining bright these days, but it is not for the faint of heart. The Direxion Daily Semiconductor 3X Bear Shares SOXS attempts to deliver three times the daily inverse performance of the PHLX Semiconductor Index and the Direxion offering is currently doing a fine job of delivering on its objective, surging almost 16 percent over the past month.

Unfortunately, traders are not yet awakening to the utility of SOXS. While SOXX has bled almost $103.1 million in assets since the start of the second quarter, investors have also pulled about $2.4 million from SOXS. Perhaps the real surprise is the nearly $79 million of inflows to SMH over that period.