After being technology laggards for most of this year, the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which tracks the cap-weighted PHLX SOX Semiconductor Sector Index, and the Market Vectors Semiconductor ETF (NYSEArca: SMH) are starting to perk up.
Over the past two weeks, SMH is up 6.2% while SOXX is higher by nearly 8%. Both ETFs and other semiconductor funds have been buoyed by a spate of mergers and acquisitions activity in the chip industry. Over the past 12 months, semiconductor industry’s M&A activity totaled $78 billion, reports Josh Lipton for CNBC.
More recently, shares of Analog Devices (NasdaqGS: ADI) and Maxim Integrated Products (NasdaqGS: MXIM) are in merger talks after Fairchild Semiconductor International (NasdaqGS: FCS) and SanDisk (NasdaqGS: SNDK) hired banks to explore possible sale options.
“In my opinion, this sector represents an important pocket of energy that may play a role in defining how high the market can go from here. Because the semiconductor stocks were so beaten down earlier in the year, there is still a great deal of upside potential across the sector relative to other opportunities. Nevertheless, it also pays to respect how high this index has rallied from its lows and not get overly bullish after a sharp run up in price,” according to See It Market.
The semiconductor industry, though, faces some headwinds. Research firm Gartner anticipates that worldwide shipments of personal computers, tablets and smartphones will rise just 1.5 percent this year, which could cause chip sales to fall 1% in 2015. Additionally, Mark Hung, a research vice president at Gartner, also pointed out that manufacturing costs remain high for chipmakers. [Semiconductor ETFs Starting To Look Electric]
For more aggressive traders who are watching for a potential break out, the Direxion Daily Semiconductors Bull 3x Shares (NYSEArca: SOXL) takes the 3x or 300% long daily performance of the PHLX Semiconductor Sector Index while the ProShares Ultra Semiconductors (NYSEArca: USD) reflects the 2x or 200% daily performance of the Dow Jones U.S. Semiconductors Index.
“Those who have been waiting for an entry point should be patient with respect to how the index behaves during the next dip. That may provide some additional clues as to whether this momentum is here to stay or just a transitory occurrence,” according to See It Market.
Market Vectors Semiconductor ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.