This article was originally published on ETFTrends.com.
Semiconductor stocks and ETFs faltered Thursday after Deutsche Bank lowered its 2019 earnings estimates for several names in the group, saying the industry could be heading for a big downturn.
Deutsche Bank “reduced its 2019 earnings estimates by 5 percent on average for eight chip stocks, citing increasing weakness in business activity,” reports CNBC.
For aggressive, risk-tolerant traders, ongoing weakness in chip stocks could spell short-term opportunity with leveraged exchange traded funds, such as the Direxion Daily Semicondct Bear 3X ETF (SOXS) . SOXS attempts to deliver triple the daily inverse performance of the widely followed PHLX Semiconductor Sector Index (XSOX).
The tit-for-tat tariff wars between the U.S. and China could wreak havoc on the semiconductor industry. This could possibly present a bearish play for SOXS to capitalize on what could be impending weakness on the semiconductor industry should these tariffs move forward and effectively diminish any profits from the sales of semiconductors as well as harm GDP. Or conversely, it could present a buying opportunity for savvy traders who see this as temporary weakness that is rife for buying opportunities.
Semiconductor Views To Consider
“Over the past few months, cyclical fears have risen across the semiconductor sector as macro uncertainties (tariffs, falling PMIs, etc.) have combined with a growing list of 'slowing' data points across the supply chain," analyst Ross Seymore said in a note to clients Wednesday, reports CNBC. "Our net conclusions are that current consensus [estimates] imply a 'smooth landing' that is rare in the semi sector and therefore risks of incremental cuts to revenue/ EPS estimates is rising."
The upcoming third-quarter earnings season will present potential tests and opportunities with the bearish SOXS and its bullish counterpart, the Direxion Daily Semicondct Bull 3X ETF (SOXL) . SOXL tries to deliver triple the daily performance of the PHLX Semiconductor Index.
From Oct. 15 through Oct. 26, nearly 47% of the components in that major chip index report earnings, according to Direxion data.
For more on inverse and leveraged ETFs, please visit our Leveraged and inverse ETF channel.
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