Chip stock volatility could afford cheap entry in October

A recent survey of analysts by FactSet revealed that we're in an "earnings recession" right now and that it's expected to get worse in the next quarter. Certain sectors have been particularly hard hit, namely mining and semiconductors. Earlier this year chip companies predicted earnings recovery in the back half of the year, but that's now looking like it won't happen. Chip stocks remain relatively high-priced for now compared to their lows earlier this year, but they could get more volatile in October, especially if a trade deal with China doesn't materialize. October is a volatile month in general, but there are even more reasons for volatility this year. (On the other hand, lowered expectations might be easier to beat on earnings reports, so maybe chip stock prices won't be hit too hard?)

Chip stocks consistently beat the S&P 500 over the long term, because technology is sexy and Artificial Intelligence and Big Data are the future. So for the medium-term or long-term value investor, a temporary earnings recession that depresses prices of chip stocks could be great news. It affords a cheap entry into an extremely profitable sector. Although SOXL is a leveraged instrument that's only supposed to be held for the short term, I like to buy and hold it for longer periods of time. Had I entered when SOXL was around $80 earlier this year, I could have made over 100% in just a few months. Watch the fluctuations and look for oversold levels in SOXL on the hourly, daily, and weekly charts.