Going forward we will be taking a deeper dive into fund offerings around various themes in the equity market that are topical or tactically relevant to Sector Investors. This note will provide a high-level evaluation of Fund offerings that can deliver the exposure we are highlighting.
Semiconductors Look Like an Accumulation Opportunity
Our inaugural note in this new column focuses on Semiconductors. The chart below shows the Philadelphia Semiconductors (SOX) Index. The horizontal reference lines on the chart (top panel) highlight key long-term resistance on the chart in the 5217-5315 range.
To a Market Technician, that area has been the “neckline” for a potential distributional top in the SOX Index since a “lower-high” was formed in August. However, with the onset of interest rate policy easing, what was looking ominous now shows renewed life. Prices have now moved above the identified “neckline” for the 2nd time since the Fed’s policy announcement and the price pattern for the SOX Index has developed into a potential early-stage bullish reversal. Given new all-timer highs in the S&P 500 confirming the bull trend for equities, we want to be long the SOX Index as Semi’s are a reliable upside exposure historically.
Most Liquid US Domiciled Semiconductor ETF’s
Below are the 30+ largest and most liquid domestic Semiconductor ETFs passing our screen. We use Factset to analyze the available universe. Two observations about the results list. One is the prevalence of NVDA derived ETF’s and how well they’ve performed. Not only the levered bull exposures from Direxion, but also the option income ETF’s and levered shorts have added value during corrections. The other observation is the varied direction of near-term 1-month fund flows across the Semiconductor ETF complex. Performance has firmed since August lows as the SOX chart shows, but the bullish reversal is at a pivot point, and we don’t have consensus positioning just yet.
From a technical perspective, we think this is a likely accumulation opportunity for Semiconductors as equities churn ahead of the US Election. Bull markets climb a “wall of worry” which periodically shakes out weak holders and creates opportunity for longer-term investors.
Data sourced from FactSet Research Systems Inc.
