Semiconductor ETFs Can Compute More Upside

Semiconductor stocks and the related exchange traded funds have recently experienced some sharp moves. For example, the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) recently slumped following some marquee earnings reports, but both ETF are showing signs of bouncing back.

Observers are concerned that slowing smartphone growth and newer technologies could cause chipmakers to reduce capital spending and lower demand for chip-making equipment. However, some traders believe chip stocks and ETFs can move higher over the near-term.

“Chip stocks have gone from hot, to not, to hot again. founder Todd Gordon says the group is on the verge of a major breakout,” reports CNBC.

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.

What Traders See in Chip Stocks

“On a chart of the SMH, the ETF that tracks chip stocks, Gordon notes the formation of an Elliott Wave triangle. This pattern of repetitive trading normally signals that a stock is about to move in the direction of trading prior to an Elliott Wave consolidation, Gordon said,” according to CNBC.

Related: Semiconductor ETFs Breakdown as Applied Materials, Nvidia Retreat