The Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL) has been riding high on the strength of the technology sector in the historic bull market run seen in U.S. equities, but is time for the bears to wrestle control from the bulls and thus, benefit the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS)?

Last week’s stock sell-off hit the technology sector and in turn, hurt semiconductors as well with the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) following the demise of U.S. equities that saw a 1,300 point loss in the Dow Jones Industrial Average in two consecutive days.

As such, SOXS overtook SOXL amid the rout in U.S. equities, but is this a sustainable run? Given the obstacles that the semiconductor industry is facing, particularly when the negative implications of trade wars between the United States and China could make its presence felt in the coming months, the reign of SOXS over SOXL could be sustainable.

Per an Investopedia article, “Chip stocks could punish complacent shareholders in the coming months, entering a bear market cycle that lasts several years and gives up the majority of gains posted since 2015. That decline could proceed despite continuing uptrends in other high-tech groups, confusing market players who don’t understand the semiconductor group’s perennial boom-bust cycles or its capacity to trade against broad benchmarks for months or years at a time.”

However, there also appears to be positive sentiment among analysts who feel that this bearish outlook could be overblown. Shares of Applied Materials (AMAT) were higher today by almost 1%, which was contrasted by a pedestrian 0.35% loss in SOXX.

Where other analysts spy weakness in the semiconductor industry, others are seeing growth.

“We believe the current semiconductor capital spending environment is in the midst of expansion,” J.P. Morgan analyst Harlan Sur wrote in a note.
“Equipment stocks are down 30-45% since the peak in March which is a similar magnitude to the 2012/2013 and 2015/2016 down cycles, and suggests limited downside from current levels,” Sur added. “The market is already discounting a significant decline in equipment spending next year.”
Sur cited various factors, including a gain in market share that could boost shares of AMAT.

“We believe a combination of market share gain, incremental revenue opportunity, broader product portfolio, increased penetration with existing customers, increased wafer capital intensity at foundry/logic/memory, and exposure to the fast-growing display market will drive growth for AMAT over the next two to three years,” said Sur.

Nonetheless, whether this remains an isolated benefit where the rest of the semiconductor industry falters remains to be seen. Until then, it will be interesting to watch how SOXL and SOXS react to the upcoming third-quarter results.

For more market trends in technology, click here.

VISIT ETFTRENDS.COM »

Related Tags