SOXS, SOXL ETFs price outlook as semiconductor stocks retreat

The Direxion Daily Semiconductor Bull 3x Shares (SOXL) ETF has slipped in the past few weeks. The SOXL fund plunged to a loe of $18 on Thursday, the lowest level since May 25th. It has retreated by more than 38% from the highest point this year. The SOXS ETF, on the other hand, has risen to $12, ~48% above the lowest level this year.

Is it safe to buy the dip?

SOXL and SOXS are two popular exchange-traded funds (ETFs) among traders. They are both leveraged that give traders an exposure to the semiconductor industry. Most importantly, these funds are very different from other vanilla ETFs like the iShares Semiconductor ETF (SOXX) and SPDR Semiconductor ETF (XSD).

The latter funds track a basket of semiconductor stocks like Nvidia (NASDAQ: NVDA), AMD, and Intel. On the other hand, SOXS and SOXL are leveraged ETFs that aim to outperform the semiconductor benchmark three times per day. As such, if the benchmark index – ICE Semiconductor Index – rises by 1%, SOXL aims to gain by 3% and vice versa.

SOXL’s biggest constituents are the top semiconductor companies in the US like Nvidia, Broadcom, AMD, Intel, and Texas Instruments. Other top names are Microchip Technology, Nxp Semiconductors, and On Semiconductor.

Therefore, these funds are ideal for day traders who seek to benefit from short-term price action. They are not ideal for risk-averse investors. For example, the vanilla SOXX ETF has jumped by ~40% this year while the SOXL fund has jumped by more than 80% in the same period. SOXS fund has crashed by over 50%,

This price action explains why the SOXL and SOXS funds are risky for long-term investors. As such, it is always recommended that these investors allocate funds to less riskier funds like SOXX and XSD.

SOXL ETF stock forecast

The daily chart shows that the SOXL stock price has been in a strong bearish trend in the past few months. This decline started when key semiconductor stocks lost momentum. It has dropped below the 100-day and 50-day moving averages (MA). The fund has moved below the 38.2% Fibonacci Retracement level. It has also dropped below the key support at $19, the lowest level on August 18th.

Therefore, the outlook for the SOXL fund is bearish, with the next level to watch being at $15. SOXL shorts can also decide to arbitrage this trade by buying the SOXL fund, which will likely continue rising.