SEMICONDUCTORS: Are you ready to get knocked off your SOX?

2019年10月23日

Using Elliott wave one can determine once an uptrend has ended as the market simply has run out of waves. Here I assess the waves off the November 2008 low (yes the SOX) bottomed well before the other major US indices and has thus been a market leader since. However, it's price pattern off the December 2018 low is all but ideal and in elliott wave terms looks very much like a (very large) ending diagonal. In technical analysis terms its called a rising wedge. This is a bearish price pattern because once it completes, and it appears very close to completion especially considering today's price action, price will rapidly (here the time frame is weeks, so "rapidly" is relative) move back to the start of the diagonal which is around $1285. Given that the leader is in that case becoming the laggard, it will be quite obvious what this will do to the broader market indices. From that level we should see at least a decent bounce as ultimately the low 1000s should get revisited. Note that the big-picture elliott wave count for the SOX is not necessarily the same as for the other major US indices such as the SPX, NDAQ or DJI as each index obvioulsy tracks different parts/segments of the overall economy and those are each at different stages of their social and business cycles, which is exactly what Elliott wave tracks and qualifies. Price will have to break above $1650 on the SOX to tell me my assessment of the chart is wrong, but given the very ragged (overlapping) price action this year, rather similar to October 2014-June 2015 and which was followed by an ~27% correction into early 2016, I prefer to err on the side of caution for now.

Trade Safe!