The VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) are each up more than 8% over the past month as semiconductor stocks are rebounding to steady the broader technology sector, but that does not mean the gains are over for this suddenly hot group.
Last month, semiconductor stocks and ETFs surged after Applied Materials, the world’s largest supplier of tools used to make semiconductor chips, said it earned $0.34 per share on revenue of $2.45 billion, beating The Street by $0.02 per share and expectations of $2.43 billion in revenue, the Wall Street Pit reports.
“Surprisingly, the giant Intel ( INTC ) is one of the leaders. Long left for irrelevant as the personal computer market faded, the stock struggled for two years and still, Intel does not present much of a long-term bullish picture. However, in the shorter-term, the stock has indeed broken out to the upside and sports encouraging supply and demand characteristics,” reports Michael Kahn for Barron’s.
Intel, a member of the NASDAQ-100 and the Dow Jones Industrial Average, is one of the largest holdings in SMH and SOXX.[related_stories]
The improving sentiment may foreshadow strength ahead for the overall chip industry as Applied Materials and Intel are viewed as industry bellwethers and the companies’ results are viewed as an indicator of health for the industry.
The semiconductor resurgence comes as investors have been departing technology stocks and exchange traded funds to start 2016. Slumping shares of Apple (NasdaqGS: AAPL) have been a drag on ETFs such as the Technology Select Sector SPDR (NYSEArca: XLK).
“Buoyed by a tech recovery, semiconductors seem to have the ingredients for success; at least if the Standard & Poor’s 500 can remain resilient as it battles strong overhead resistance. If the broad market fails then semis will have a much harder time building on the ground that’s already been won,” according to Barron’s.
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.
For more news and strategy on the Technology market, visit our Technology category.
VanEck 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.