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.
“Looking at a fund such as the VanEck Vectors Semiconductors ETF (SMH), the trend and momentum of the entire sector can become apparent. Notice how the recent upward momentum has stalled near the resistance of the dotted trendline near $56. This failed attempt to surpass the resistance suggests that the bears are trying to control the momentum and the recent crossover between the MACD and its signal line (shown by the red circle) suggests that a move toward the lower support level could be likely. Bearish traders will likely look to protect their positions by placing a stop-loss order above the trendline in an attempt to maximize the risk/reward,” according to Investopedia.
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.
VanEck Vectors Semiconductor ETF