The semiconductor shortage is giving traders options to play the volatility whether they want to go long or short with the Direxion Daily Semiconductor Bull 3X ETF (SOXL) and the Direxion Daily Semiconductor Bear 3X Shares (SOXS), which is up about 40% year-to-date.
Both funds seek 300% of the daily performance of the PHLX Semiconductor Sector Index. Right now, the bears have the advantage, but as supply starts to ramp up again and meet demand, the bulls could regain the upside trend.
Looking at the long-term trend, SOXL is up over 300%, so a bullish turn could be underway at some point. Fundamentals for semiconductor use are certainly in its favor with its utility factor in a variety of business sectors.
SOXL faltered to start the year with a 40% drop so far in 2022. A good portion of the bearishness has to do with mixed earnings from industry movers and shakers.
“Semis cannot catch a break,” said Jordan Klein, managing director for tech, media, and telecom sector trading at Mizuho Securities. “Sentiment (is) worsening for analog, cyclical and wireless.”
“Semiconductors feed the defense, medical, industrial control and transportation sectors, to name just a few,” a Defense News article says. “America is confronted with a rising China that is committed to becoming the dominant technology power and increasingly poses an existential threat.”
“We must quickly address critical supply chain security and resiliency issues,” the article adds. “Both American soft and hard power are girded by our innovative technology and ability to apply it with agility to market demands and national security requirements.”
Two More Plays
As the article mentions, the semiconductor industry can feed into transportation and defense. That said, Direxion Investments also has leveraged ETFs to trade these sectors.
The Direxion Daily Transportation Bull 3X Shares (TPOR) seeks daily investment results that are equal to 300% of the daily performance of the Dow Jones Transportation Average. The index measures the performance of large, well-known companies within the transportation industry.
Additionally, the Direxion Daily Aerospace & Defense 3X Shares ETF (DFEN) seeks daily investment results equal to 300% of the daily performance of the Dow Jones U.S. Select Aerospace & Defense Index. The index attempts to measure the performance of the aerospace and defense industry of the U.S. equity market.
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