The semiconductor sector has been one of the hottest sectors in the market over the last five years, and there’s a reason making the semiconductor sector ETFs one of the most effective gauges for where the economy – and stocks – are heading over the next 3 to 6 to 12 months.
Last July, the semiconductor sector started giving us subtle suggestions that the market was heading exactly where it is today. During the “healthy correction” that stocks saw suing the summer of 2024, the semis stated easing back on their performance in relationship to the S&P 500. That slight slowdown has turned more indicative of the increased chances that the economy will head into a recession – something Goldman Sachs is now forecasting – which will result in even more headwinds for stocks.
I’ve got a more detailed description of my Dow Theory 2.0 coming next week, but for now let’s look at this chart.
The chart below is a simple relative strength measure of the S&P Semiconductor ETF versus the S&P 500 index. The analysis is simple, if the trend is moving higher it confirms that the semiconductors are gaining strength. That’s good for the economy and stocks.
When the trend peaks – as it did in June 2024 – it’s that subtle indication that the semiconductor industry is starting to slow its performance. Last summer we saw headlines from companies like Micron and Samsung - the companies that make everyday semiconductors that go into our cars and toasters – inform investors that they were forecasting lower demand. The effects hadn’t hit the market, but the long-term signals were brewing.
The trouble starts to form for the semiconductor stocks and the broader market when the relative strength line drops below 1.0. This indicates, not suggests, that the deterioration of semiconductor stock performance is accelerating, which is never good for stocks.
That’s where we are today. In just a few weeks, the Semiconductor relative strength will drop below 1.0 for the first time since 2021. In 2021, the indicator dropped below 1.0 just weeks before the rest of the market followed the semis into a full-blown bear market trend.
While the news is bad, there are ways that investors can position themselves to benefit from the breakdown in the semiconductor stocks.
The ProShares UltraShort Semiconductors ETF (SSG) is an ETF that is invested in such a way that its performance offers a 2:1 leveraged hedge against the semiconductor sector. This ETF will go up by around 2% for every 1% the S&P Semiconductor ETF falls. This makes the ETF a great alternative investment for investors that are looking for opportunities to turn the expected drop in semiconductor stocks into a better returns for their portfolio.
The ETF trades like any other stock or ETF in that you can apply target prices, stop prices and limit orders to purchase and sell. ProShares UltraShort Semiconductors volume is historically lighter than other ETFs during normal market trends, but the last month saw a marked increase in interest and volume in the ETF for obvious reasons.
From a technical perspective, the ProShares UltraShort Semiconductors ETF shifted into a bull market trend just over a month ago as its 50-day moving average shifted into an ascending pattern. In addition, the current trajectory of the shares has them heading for a Golden Cross pattern within the next month which would forecast a strengthening of their bullish trend.
In every sense of the word the ProShares UltraShort Semiconductors ETF is an alternative investment, but it is normally those investors that are willing to look at the market from different alternatives and solutions that find the opportunities to benefit from troubled markets.
SSG shares are trading at $33, about 7% lower than their 2025 highs of $35.85 which were posted just two days ago.
A word of caution; looking at the five-year chart for the ProShares UltraShort Semiconductors ETF will unveil a high price of more than $900 just two years ago, do not think that this ETF will run from its current price to $900.
This ETF achieves its inverse performance by managing a basket of short positions against the semiconductor index. Those short positions experience something often referred to as “slippage” as time passes and the performance of the semiconductor sector is positive.
The last semiconductor bear market trend resulted in 90%+ returns for the SSG shares as that appreciated from $500 to $850 over the span of one month before rolling back over and continued their trend lower.
This stresses the importance of viewing these investments for what they are, an opportunity to generate positive returns from intermediate shifts in the technology market.
Given that, investors can expect to see the ProShares UltraShort Semiconductors ETF rally from their $33 price to a target of $50 over the next 3-6 months. Investors should consider the use of a trailing stop or other profit management approach as a means for closing the position beyond that price target.
