Super Semiconductor ETFs Look For More Upside

The PHLX Semiconductor Sector Index (XSOX), a widely followed gauge of semiconductor equities, is up nearly 33 percent this year and breaking out towards more record highs.

While semiconductor stocks and the related exchange traded funds are exciting investors, adding leverage to the equation can be exhilarating for savvy short-term traders.

What Happened

The Direxion Daily Semiconductor Bull 3X Shares SOXL has certainly been delivering some exhilarating performances this year. SOXL is designed to deliver triple the daily returns of the PHLX Semiconductor Sector Index.

“Among the main reasons SOXL has surged over the course of the first four months of the year is the apparent resilience of the Chinese economy in the face of slow growth projections,” said Direxion in a recent note. “Throughout 2018, semi stocks struggled to break out largely due to the uncertain effects the U.S.-China trade war might have on both Chinese manufacturers and consumers in a year when China’s GDP slowed to its slowest pace in 30 years.”

Why It's Important

SOXL is on a torrid pace. This is a triple-leveraged ETF, so it should be held for for weeks on end, but a year-to-date gain of more than 116 percent is seductive as is SOXL's April gain of about 32 percent. Month to date, SOXL is the best-performing leveraged bullish fund in Direxion's stable, according to issuer data.

Data suggest traders may be taking profits in SOXL. For the 10 days ending April 16, outflows from SOXL topped $63.5 million, a total surpassed by just one other Direxion ETF. Conversely, SOXL's bearish cousin, the Direxion Daily Semiconductor 3X Bear Shares SOXS, saw inflows of $37 million over that stretch, good for the fourth-best total among Direxion's leveraged ETFs.

What's Next

As for what's next for semiconductor stocks, SOXL and SOXS, in a word: earnings. For the week starting April 22, more than 38 percent of the components in the PHLX Semiconductor Sector Index report earnings. The following week, that number is about 20 percent, meaning traders have two weeks packed with potential opportunities to deploy SOXL and SOXS.

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