The Direxion Daily Semiconductor Bull 3x ETF gained 535% in the first half of 2026, then lost more than 60% of its value in a little over a month as the AI trade reversed.
Back
SOXL plunges 60% as leveraged ETF drawdown hits semiconductor bulls
The Direxion Daily Semiconductor Bull 3x ETF gained 535% in the first half of 2026, then lost more than 60% of its value in a little over a month as the AI trade reversed.
SOXL has plunged more than 60% from its June peak after a 535% first-half surge, as investors rotated out of technology stocks on concerns about AI overspending.
"Some reprieve is in order" after the "largest/fastest momentum crash in modern history," said Jonathan Krinsky, chief market technician at BTIG, who cautioned against buying the dip.
The PHLX Semiconductor Index slid 5.3% on Wednesday, its worst session since early July, though it remains up 45% this year versus a 5% gain for the Nasdaq Composite. The Nasdaq logged its sixth-straight loss, the worst run since April 2024, and came close to a 10% drop from a June 2 record close. The MS Sector-Neutral Momentum Index posted its worst four-day decline on record at 17.4%, surpassing drops after the dot-com bust, 2022 and post-COVID.
The drawdown has hit individual semiconductor names hard. SanDisk tumbled 45% in a month, Micron fell 26.82%, and Western Digital declined 12.78%. The Roundhill Memory ETF dropped 30% from its all-time high. Rising 30-year Treasury yields, which touched their highest since 2007 at 5.246%, have compounded pressure on tech stocks that sell themselves on future profitability. Healthcare, REITs and insurance have been areas of relative strength, according to BTIG, though much of that has come from unwinding positions on the other side of semiconductors.
Leveraged Products Magnify Both Sides
Leveraged ETFs use derivatives contracts to double or triple daily exposure to an underlying asset. The Direxion fund, which tracks three times the daily performance of semiconductor stocks, delivered spectacular gains during the AI rally but has proven equally punishing on the downside. Losses of 20% to 30% or more over several days are not unusual when the market turns against these products, and the current drawdown has been one of the sharpest ever recorded in the sector.
Retail investors should be using leveraged products very little, if at all. They are sophisticated trading vehicles designed to be held for no more than a couple of days, not long-term holdings. The products look enticing during bull markets when everything is increasing in value, but when the market reverses, losses pile up incredibly quickly.
Record Momentum Crash and the Dip-Buying Trap
Krinsky said the Goldman Sachs High Beta Momentum Pair, a high-volatility momentum-stock index, is now 23% below its 200-day moving average after being 40% above that level in mid-June. He warned that while a tactical rebound in tech is possible, it could be a head-fake. In 2000, after the dot-com peak, the PHLX Semiconductor Index sank 35% in a month, then surged 37% before falling again.
"A 20% rally would bring the SOX back to its 50-day moving average where we think it likely would fail again, as we still think it eventually tests its 200-day moving average," Krinsky said.
Callum Thomas, head of research at Topdowncharts, flagged that the ratio of trading in leveraged long versus short U.S.-equity ETFs has surged to levels last seen during the 2021 stimulus frenzy. "It adds to a growing list of topping signals, so I think at this point the burden of proof is with the bulls and caution is warranted," he said.
The broader market context remains fragile. The Fed's preferred personal consumption expenditure price index fell 0.1% in June, the first dip since the pandemic, while second-quarter GDP rose a less-than-expected 1.5%. The 10-year Treasury yield sits at 4.705%, and gold trades at $4,069.70 per ounce.
For investors in leveraged semiconductor products, the lesson is clear: these instruments are trading vehicles, not investments. The 60% drawdown in SOXL in just over a month demonstrates how quickly leverage can destroy capital when the momentum trade reverses.
This article is for informational purposes only and does not constitute investment advice.
