The VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), two of the most widely followed semiconductor exchange traded funds, are among the technology ETFs that ended 2018 in a downward spiral.
Following a fourth-quarter loss of more than 15%, SOXX finished 2018 lower by more than 8% while SMH finished last year lower by 11.21% following a fourth-quarter loss of nearly 18%.
There are some risks to consider with semiconductor stocks and ETFs. For example, President Donald Trump has pushed for restrictions on trade barriers with China, which might pose a threat to the sector. China is a key market for the global semiconductor industry, consuming more than $100 billion worth of semiconductors or roughly one-third of the world population.
Still, some analysts believe there is opportunity in the currently downtrodden semiconductor space.
“According to Piper Jaffray’s chief market technician, Craig Johnson, now could be the time to ‘put some chips back on the table’ since the market is ‘shifting more from defense into more of an offensive move,’” reports CNBC.
Looking Ahead
Investors could be paying up for future catalysts for semiconductor and broader technology names. If there is a silver lining for the rising valuations on chip stocks it is that some industry observers believe the group’s valuations should not be measured in the traditional sense because of the evolution of the semiconductor business.
“Johnson believes $80 is a key level of support for the SMH. The ETF hit that level earlier last week and then bounced higher, so he believes the chart is indicating an uptrend,” according to CNBC.
In the fourth quarter, investors displayed no enthusiasm for chip ETFs, pulling a combined $590 million SMH and SOXX.
“We’re probably going to be range-bound. Probably $80 on the lower end, $100 on the upper end. We’re going to have to trade them in 2019, but I think this is a good way to trade it at this point,” said Johnson in the CNBC interview.
For investors looking to play leveraged strength or weakness in the semiconductor space can look to the Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL) or Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS).
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