Sign InSOXL Outlook: Potential Rebound After Recent Drop, Semiconductor Sector Offers Long-Term Growth
Summary
The Direxion Daily Semiconductor Bull 3X Shares (SOXL) experienced a 3.65% drop in price on July 6, 2023, but remains above its moving averages and shows positive momentum, suggesting a potential rebound in the short term, while long-term investors may benefit from the growth prospects of the semiconductor sector, categorizing SOXL as a 'Hold' for short-term traders and a 'Buy' for long-term investors.
Stock Overview and Technical Analysis
Direxion Daily Semiconductor Bull 3X Shares (ticker: SOXL), traded on the AMEX exchange, closed on July 06, 2023, at a price of $22.98, down $0.87, or 3.65%. This ETF recorded a low of $22.04 and a high of $23.05 during its last trading day. It is currently experiencing higher trading volume than normal with a figure of 48.54 million against an average volume of 61.82 million.
On a year-to-date basis, SOXL has traded as high as $26.79 and as low as $6.21. Despite the dramatic downward price shift of 3.65% on the last trading day, it remains significantly above its 200-day moving average ($14.47) and slightly above its 50-day moving average ($19.41). The path of least resistance appears upward based on these two indices, providing a bullish signal.
Furthermore, the Moving Average Convergence Divergence (MACD), a momentum indicator, for the last three months stands at 1.39, indicating a positive price momentum. But the Relative Strength Index (RSI), another vital momentum tracker, is at 36, hinting that SOXL is nearing the oversold territory. This could suggest that SOXL might be due for a rebound in the short term. Although the ETF's price-to-earnings ratio is 24.79 — high compared to industry peers — it has a positive EPS of 0.93, demonstrating profitability.
Recent News Sentiments and Fundamental Analysis
Looking at the recent news, the semiconductor industry, and by extension Leveraged ETFs like SOXL, has benefitted from the competition race between the U.S. and China. This has heated up the semiconductor sector, causing SOXL to surge over 100% and providing a strong momentum.
However, caution must be taken due to the potential cyclical nature of semiconductor stocks and high valuation levels. News of a possible June pullback would have been significant for short-term traders. With the Bank of America Securities Global Technology Conference and Nvidia's shareholder meeting in June, there likely was increased volatility. This factor could also explain the recent negative price change.
Outlook and Recommendation
For the next trading day, July 7, 2023, and the upcoming week, based on the technical analysis, the stock is expected to rebound slightly. This expectation is due to its oversold RSI level and its above-average 50-day and 200-day moving averages — which typically suggests positive price momentum.
However, given the recent sharp drop, the stock may likely continue experiencing some level of volatility. Thus, it may be prudent to expect some near-term price correction. For long-term investors, the strong growth of the semiconductor sector and the positive prospects due to the U.S.-China competition suggest more significant potential for price appreciation.
For these reasons, SOXL is categorized as a 'Hold' for short-term traders due to expected temporary volatility and as a 'Buy' for long-term investors because of the solid growth prospect of the semiconductor sector. As always, prospective investors are advised to conduct their own comprehensive research.
