- Semiconductor ETFs have rallied over the past several weeks, but has done little to improve technical outlook for the group
- Worldwide shipments of personal computers, tablets and smartphones rose only modestly in 2015
- Traders are betting on more declines for the group
The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which tracks the cap-weighted PHLX SOX Semiconductor Sector Index, and rival semiconductor exchange traded funds have rallied over the past several weeks, but that has done little to improve the technical outlook for the group.
The semiconductor industry, though, faces some headwinds. Research firm Gartner anticipates that worldwide shipments of personal computers, tablets and smartphones rose only modestly last year, which could cause chip sales to decline.
Making matters worse for semiconductor stocks and ETFs is negative sentiment coming from the options markets where traders are betting on more declines for the group.
The chart for SOXX’s underlying index “fits the description of a head and shoulders top as the left shoulder was put in during the middle part of 2014, the head last summer, and more recently the right shoulder over the last few months,” according to J.C. Parets of Eagle Bay Capital.
ETF investors who are wary of continued weakness in the semiconductor space can turn to inverse or short semiconductor ETF options to hedge against a dip.
For instance, the ProShares UltraShort Semiconductors (NYSEArca: SSG) takes the -2x or -200% daily performance of the Dow Jones U.S. Semiconductors Index and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS) provides a -3x or -300% performance of the PHLX Semiconductor Select Index.
“I would argue that if prices are able to recover and get above that broken trendline, then it would increase the possibility that this is not what it appears to be: a massive bearish reversal pattern. The confirmation in this doesn’t come until we break the neckline anyway, but a rally higher would be step one in the invalidation process of this massive topping price pattern,” adds Parets.
iShares PHLX Semiconductor ETF
