Some Traders Wager On A Rebound For Chip Stocks

Semiconductor stocks and the related exchange-traded funds have been front and center amid the US/China trade controversy. The industry's vulnerability to trade tensions, particularly those involving China, was on display in May when the widely followed PHLX Semiconductor Sector Index (XSOX) plunged 15.9%, dropping 800 basis points more than the Nasdaq-100 Index.

What Happened

Month-to-date, chip stocks are rebounding with the PHLX Semiconductor Sector Index up 6.7% through June 12, though that trails the Nasdaq-100 Index by 50 basis points.

The still-modest recovery in semiconductor stocks is proving to be enough to lure aggressive traders to the Direxion Daily Semiconductor Bull 3X Shares SOXL. SOXL looks to deliver triple the daily returns of the PHLX Semiconductor Index.

Why It's Important

While there are still more than two weeks of trading left in June, the strong start to the month by chip stocks and ETFs is impressive when considering the group usually lags in the six-month of the year.

“On the flip side, seasonally June is a month where semiconductors typically underperform so our view is that from a trading basis, you’ll continue to see some very jumpy volatile trading here before you get aggressively long,” said Oppenheimer's Ari Wald in a recent CNBC interview.

Traders seem to be ignoring that seasonal trend with favorable results. For the 10 days ended June 12, traders poured $25.59 million into the bullish SOXL, good for the fourth-best inflows among Direxion's leveraged ETFs, according to issuer data.

Over the trailing five-day span, SOXL raked in $19.39 million in new assets, the third-highest sum among Direxion's leveraged funds.

What's Next

Underscoring traders' overt favoritism for SOXL, data confirm capital is pouring out of SOXL's bearish counterpart, the Direxion Daily Semiconductor Bear 3X Shares SOXS. For the 10 days ending June 12, traders yanked $42.67 million from the bearish SOXS, outflows representing nearly a quarter of the fund's assets under management.

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