Trading Taiwan Semiconductor's Upcoming Litmus Test Through Direxion's TSMX, TSMZ Funds

Although technology juggernaut Nvidia Corp NVDA invariably commands the spotlight for all things AI-related, traders may first look to chip foundry Taiwan Semiconductor Manufacturing Company Ltd. TSM for clues regarding sentiment for the broader innovation ecosystem. That's mainly because the contract manufacturing specialist is scheduled to disclose its third-quarter earnings report next week.

Wall Street anticipates Taiwan Semiconductor — which is commonly abbreviated as TSMC — to post earnings per share of $1.80, with a high-side view of $1.90. In the year- ago quarter, the company managed to deliver EPS of $1.29. On the top line, market experts are fishing for a consensus target of $22.65 billion, with an optimistic forecast of $23.2 billion. One year ago, the chip manufacturer rang up $17.07 billion.

Generally, sentiment seems bullish for TSM stock. Financially, the underlying company has managed to consistently beat its bottom-line targets. In the past four quarters, TSMC's average earnings surprise landed at 6.03%. On a fundamental note, the tech enterprise is expanding its global footprint, most recently through breaking ground of its fabrication facility in Dresden, Germany.

At the same time, TSM stock isn't without critics. For one thing, the magnitude of its earnings beats have softened consecutively since Q3 2023. Further, the technical backdrop isn't particularly encouraging for the bulls recently, with options data showing a rise in bearish sentiment.

The Direxion ETFs: Nevertheless, the back-and-forth among traders regarding TSM stock provides rich grounds for financial services giant Direxion and its Taiwan Semiconductor-focused exchange-traded funds. One of the company's most recent products is the Direxion Daily TSM Bull 2X Shares TSMX, an ETF that seeks 200% of the performance of TSMC shares.

On the other end of the aisle is the Direxion Daily TSM Bear 1X Shares TSMZ, which seeks 100% of the inverse performance of TSM stock. As the financial services provider notes, both funds involve a high degree of risk. Furthermore, investors should avoid holding a position for longer than one day in both these ETFs due to the daily compounding effect of volatility.

The TSMX ETF: Launched earlier this month, TSMX got off to a strong start thanks to the underlying equity moving up strongly ahead of the Q3 earnings test.

• Since its market debut, TSMX has been rising in an ascending staircase pattern, presenting an auspicious framework for bullish speculators.
• One factor to watch is the heavy intraday selling volume, which may indicate an environment of wild choppiness.

The TSMZ ETF: Also launched in early October, TSMZ has not been kind to bearish speculators as the bulls pile into AI-related enterprises.

• The inverse fund made its debut at $24.50, per data from Benzinga. According to Direxion's website, TSMZ currently carries a market price of $23.82.
• Although the introduction of the inverse ETF has not gone well for the bears, the pessimistic options data suggests that the smart money is increasingly betting against TSM stock.

Featured photo by Tom on Pixabay.