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4 Semiconductor ETFs Face Headwind on Tech Slump

The technology sector, the largest sector weight in the S&P 500, has been struggling as of late. Investors looking for this bellwether group to rebound probably should not expect semiconductor stocks and exchange traded funds (ETFs) to stoke that rebound, if it even materializes.

Some technical analysts see the charts of the VanEckVectors Semiconductor ETF (NYSEArca: SMH ) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX ) , which tracks the cap-weighted PHLX SOX Semiconductor Sector Index, as currently imperiled thanks in large part to slack performances from marquee chip names such as Dow component Intel (NasdaqGS: INTC) and Qualcomm (NasdaqGS: QCOM).

The semiconductor industry, though, faces some headwinds. Research firm Gartner anticipates that worldwide shipments of personal computers, tablets and smartphones rose only modestly last year, which could cause chip sales to decline.

Related: Trouble Ahead for Semiconductor ETFs Despite Rally

Semiconductor weakness comes as investors have been departing technology stocks and exchange traded funds to start 2016. Slumping shares of Apple (NasdaqGS: AAPL) have been a drag on ETFs such as the Technology Select Sector SPDR (NYSEArca: XLK ) .

Investors have grown increasingly concerned over the company's iPhone sales growth, especially with China experiencing an economic slowdown. ETF investors will also have to keep a close eye on AAPL as the company makes up double-digit weights in most broad tech-sector ETFs. Chip stocks also make up a healthy percentage of broader tech ETFs' lineups.

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Making matters worse for semiconductor stocks and ETFs is negative sentiment coming from the options markets where traders are betting on more declines for the group.

"Looking at a fund such as the VanEck Vectors Semiconductors ETF ( SMH ), the trend and momentum of the entire sector can become apparent. Notice how the recent upward momentum has stalled near the resistance of the dotted trendline near $56. This failed attempt to surpass the resistance suggests that the bears are trying to control the momentum and the recent crossover between the MACD and its signal line (shown by the red circle) suggests that a move toward the lower support level could be likely. Bearish traders will likely look to protect their positions by placing a stop-loss order above the trendline in an attempt to maximize the risk/reward," according to Investopedia.

Related: 46 Tech ETFs to Tap Into Big Growth Names

ETF investors who are wary of continued weakness in the semiconductor space can turn to inverse or short semiconductor ETF options to hedge against a dip.

For instance, the ProShares UltraShort Semiconductors (NYSEArca: SSG ) takes the -2x or -200% daily performance of the Dow Jones U.S. Semiconductors Index and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS ) provides a -3x or -300% performance of the PHLX Semiconductor Select Index.

For more news and strategy on the Technology market, visit our Technology category .

VanEckVectors Semiconductor ETF

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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