Tuesday, July 9, 2013

SOX Semiconductors Weekly and Daily Charts Sideways Symmetrical Triangles Bull Flag Diamond Patterns

Semi's were spanked yesterday on the INTC downgrade. Chips across the board fell with the SOX hit -2%. SMH is the semi ETF so this technical analysis can be applied there as well. SSG is the double inverse ETF against semi's and it popped +4% on the semi weakness. Keystone was trading SSG a couple weeks ago as semi's topped with the red arrow on the daily chart. The red lines identify the negative divergence that created that smack down. On the weekly chart the long term dark blue sideways symmetrical triangle shows a price breakout at 375-ish. The vertical side is as much as 150 handles so an upside target of 525-ish is in play. The chart characteristics do not reinforce this action, however. Using the smaller tighter triangle to focus on the action over the last year, its vertical side is about 100 handles which targets 475-ish which is achieved satisfying this triangle pattern.

The pink lines show a two-leg bull flag pattern. The first leg is 355 to 440, about 85 handles, and the second leg begins at 410, after the sideways consolidation flag forms, and this targets 495-ish. So price remains short of this target as well as the long-term triangle mentioned above. Keystone's 80/20 rule says 8's typically lead to 2's, so 480 would hint at a move to the 520's. Price has stalled before 480, so far.  The negative divergence on the weekly chart is not enthusiastic about seeing any further upside in chips and creates the spank down yesterday. More downside would be anticipated. Note the diamond pattern now in play. Yesterday's top tagged the upper trend line for the diamond. A move to the lower trend line is 460-ish. The center line of the diamond is 465-466, the current price so if the diamond plays out, a move down to 460 would be on tap then recovery to 465 where price has to make a major decision. Sometimes diamonds continue the upside as a diamond continuation pattern and sometimes price collapses after the diamond plays out so it is a matter of waiting for the diamond to finish and see what happens. The weekly chart would be agreeable to downside ahead.

Price is now testing the blue upward-sloping channel's lower trend line so failure here would be a bearish indication. The indicators on the daily chart favor a sideways vibe that would reinforce the diamond pattern playing out. The thick red line is at the 462.50-ish level which is a bull-bear line in the sand identified by Keystone's trading algorithm, Keybot the Quant. If SOX falls below 462.50, and this number will fluctuate slightly as the day moves along, the broad indexes will sell off. The market bulls are fine above 462.50. So add all this mumbo jumbo together and what does it mean? Projection is for price to funnel into the right half of the diamond so SSG may be an attractive trade on any pops in SOX, and then at the right side of the diamond price will have to decide up or down. The weekly chart projects weaker semi's moving forward from here. If SOX closes above 480, that would negate this negative scenario and price will likely explore the upside bull flag and triangle targets at 495-530 where the top would occur. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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