Betting on a Semiconductor Comeback Times Three
This article was originally published on ETFTrends.com.
When looking at the PHLX Semiconductor Index specifically, 2018 hasn't been kind to the sector as it's been down 0.77% year-to-date, largely dragged down by trade wars between the United States and China.
However, if both nations can replicate the cooperation that the U.S. and European Union were able to accomplish last week, the semiconductor industry could get an infusion of positive market activity in the coming months, which could benefit semiconductor investors--even more so for leveraged plays like the Direxion Daily Semicondct Bull 3X ETF (SOXL).
In its year to date chart, the PHLX Semiconductor Index has been a paragon of volatility, crisscrossing its 50-day moving average. Since the beginning of July, it's dwelled below the 50-day moving average, but that could change if the positive news from earnings reports provides a fundamental peek inside the sector that runs contrast to the trade wars.
Just recently, ON Semiconductor Corporation released its second-quarter earnings results, posting an earnings per share number of $0.46, which bested consensus estimates of $0.45 EPS. Furthermore, their revenue of $1.46 billion ousted last year's second-quarter revenue of $1.38 billion.
"Demand for our products continues to accelerate as customers are increasingly relying on us to provide key technologies for newly emerging applications in automotive and industrial markets," said Keith Jackson, CEO of ON Semiconductor.
Related: Why Semiconductor ETFs Can Bounce Back
The sector has been helped by the performance of one of its market leaders AMD Micro Devices. Last Thursday, AMD beat analyst expectations with an earnings per share of $0.14 as opposed to $0.13 while reported revenue of $1.76 billion beat estimates of $1.72 billion.
The chipmaker got more positive news today when financial services firm Cowen Group raised its price forecast for AMD's stock to $25 from an initial target of $21. As of 2:00 p.m. ET, shares of AMD are just below $20.
The recent spate of positive news could provide the positive picture painted by the industry's fundamentals, which could give the sector a boost and in the case of SOXL, 300% of the performance of the PHLX Semiconductor Index. Nonetheless, trade wars could continue to weigh heavily on the sector until the U.S. and China can ameliorate their issues.
"We're really facing, in the next 20 to 40 days, unprecedented supply chain risk for the semiconductor industry, and the stocks are telling you something," said Larry McDonald, macro strategist and editor of the Bear Traps Report.
For more market trends in technology, click here.
POPULAR ARTICLES FROM ETFTRENDS.COM
