Two ETFs to Play Volatility in Semiconductor Earnings Season
A The chip shortage has been an obvious factor in the performance of semiconductor stocks, but as global supply eventually catches up with demand, it could be a volatile earnings season for the industry.
That said, exchange-traded fund (ETF) traders will want to ensure that the ETF Direxion Daily Semiconductor Bull 3X (SOXL) and the Direxion Daily Semiconductor Bear 3X Shares (SOXS) are part of their arsenal when earnings reports are released. Both seek 300% of the daily performance of the PHLX Semiconductor Sector Index.
Looking at the two charts since the start of the year, the semiconductor shortage has obviously benefited SOXS this year with a 32% gain. SOXS can thank the supply chain issues that disrupt the ability to meet the global demand for semiconductors, which affects a number of industries, including the automotive industry.
In addition, plant closures in Asia hamper semiconductor production. Add to that the power outages in China, and that adds another layer of volatility for semiconductor earnings.
âAdd to that a potential slowdown from China and growing fears about double orders, and we think this earnings season will be very volatile,â said CJ Muse, analyst at Evercore ISI. “So probably a rough road with little conviction one way or the other.”
A newer momentum for bears
While the YTD chart belongs to the bulls, the most recent one month chart gives the victory to the bears. SOXS is up 10% over the past four weeks as traders could bet on less than stellar performance for semiconductor stocks.
This momentum could be short-lived if Taiwan Semiconductor’s earnings are any indication of what lies ahead for the industry. The company exceeded expectations by “gaining $ 1.08 per US share in the September quarter, up 17% from the previous year period,” according to an Investor’s Business Daily article.
“Analysts were expecting earnings of $ 1.04 per share, according to FactSet,” the article added. “The company’s sales increased 23% to $ 14.88 billion.”
âOur business in the third quarter was primarily driven by strong demand across all four growth platforms, namely smartphone, HPC, IoT and automotive applications,â said Wendell Huang, vice president and chief financial officer of TSMC . âAs we approach the fourth quarter of 2021, we expect our business to be supported by strong demand for our advanced 5nm technology. “
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