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These Leveraged ETFs May Tell You All You Need to Know About The Trade War

The technology sector once again finds itself at the center of US/China trade tensions. While no corner of the export-heavy sector is likely to be spared as long as the world's two largest economies are not making nice on trade, semiconductor stocks and exchange-traded funds are increasingly vulnerable.

What Happened

The PHLX Semiconductor Sector Index (XSOX) is lower by nearly 11% over the past week, including a 4.32% decline on Monday. That after the industry has already endured some pressure due to demand outlook concerns.

The World Semiconductor Trade Statistics group recently forecast a 12% decline in chip sales, which only be partially offset by a 5% increase next year.

Combine that disappointing outlook with the trade war and threat of new tariffs by the U.S. on Chinese imports, and it is not surprising that some traders are looking to the Direxion Daily Semiconductor Bear 3X Shares (NYSE: SOXS).

Why It's Important

The bearish SOXS attempts to deliver triple the daily inverse returns of the PHLX Semiconductor Index. That's about what SOXS did Monday, surging 13.16% on volume that was more than double the daily average.

Noting that President Trump's tweetstorm that ignited the current trade controversy was sent last Thursday, that gave some time to traders to pile into SOXS. For the week ending Friday, Aug. 2, traders allocated more than $51.1 million to the bearish SOXS, good for the highest total among Direxion's leveraged ETFs, according to issuer data.

Over those 10 days, inflows to SOXS equaled almost 23%, a percentage surpassed by just two other Direxion ETFs

What's Next

To go along with the big inflows to SOXS were even larger outflows from the Direxion Daily Semiconductor Bull 3X Shares (NYSE: SOXL). SOXL, which attempts to deliver triple the daily returns of the PHLX Semiconductor Index, saw outflows of $160.7 million over the past 10 days, according to issuer data. That was nearly $100 million more than the next-worst offender on the list of Direxion's leveraged ETFs.

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