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What Leveraged ETFs Are Saying About The Chip Trade

Technology stocks took a bit of a beating last week, especially semiconductor stocks. The Technology Select Sector Index (XLK) fell about 8 percent off its highs from Nov. 28, while the widely followed PHLX Semiconductor Index (SOX) fell nearly 10 percent.

Leveraged exchange-traded funds dedicated to semiconductor stocks tell the tale of the industry's recent woes. By Monday's close, the Direxion Daily Semiconductor Bull 3X Shares (NYSE: SOXL) was sporting a 20 loss in the last two weeks, making it one of Direxion's worst-performing leveraged bull funds this month.

Conversely, the bearish answer to SOXS, the Direxion Daily Semiconductor Bear 3X Shares (NYSE: SOXS), has seen a stellar December performer. SOXS's 20 percent gain in that same span makes it one of Direxion's best-performing inverse leveraged ETFs this month.

Some Encouraging Stats

While the rotation out of technology stocks gave pause to the tech sector's dominance, there are some encouraging statistics remain for semiconductor bulls.

“Worldwide sales of semiconductors reached $37.1 billion for the month of October 2017, an increase of 21.9 percent from the October 2016 total of $30.4 billion and 3.2 percent more than last month’s total of $36.0 billion,” according to the Semiconductor Industry Association (SIA). “October marked the global industry’s largest-ever monthly sales total.”

The statistic that SOXS users are likely to highlight is that global semiconductor market growth is expected to be 20.6 percent this year, but slow to 7 percent in 2018, according to the World Semiconductor Trade Statistics (WSTS).

SOXL tries to deliver triple the daily returns of the PHLX Semiconductor Index while SOXS seeks to replicate triple the daily inverse returns of that benchmark.

Split Decision

While investors have been departing diversified technology ETFs, the situation with SOXL and SOXS is a dichotomy as data indicate traders are embracing both funds. Additionally, both leveraged semiconductor ETFs have recently significant increases in average daily volume, according to issuer data.

Perhaps in an effort to catch a bottom, traders are pouring $8.1 million per day into SOXL over the past month. Enthusiasm for the bearish SOXS is evident though a bit more restrained as highlighted by average daily inflows of just over $200,000 over the past 30 days.

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