SOX Semiconductors Weekly Chart; SOX Tags 1600 Level; Overbot; Negative Divergence; Spinning Top; Expansion (Megaphone) Pattern

The chips have carried the broad stock market higher this year. Keystone posted the SOX chart a month ago and new highs were expected on the weekly basis which occur. The SOX prints a new all-time record high at 1605 tagging the 16-hundo level. Silicon Valley enthusiasts are donning fleece vests dancing jigs of joy in front of the Facebook, Apple, Amazon, Netflix and Google (FAANG) offices. Well, what's next for the semiconductors?

Chips go into about every product made nowadays and are spear-heading the technological breakthrough's in blockchain, autonomous cars and other applications. Investors cannot get enough chips. Traders are buying shares of semi companies day after day at the ask. The blue two-leg bull flag pattern plays out. SOX jumps from 1090 to 1390 for the first leg, that is 300 points, then a bit of sideways to sideways lower consolidation (this consolidation period should last longer than it did), and the second leg begins at 1310 so 1610 is the target and bingo, the two-leg bull flag pattern is satisfied.

The SOX prints a record high at 1604.57 and record closing high at 1575.38 on 4/24/19. Chips print a new weekly high but not a new weekly closing high. That last red candlestick for the marginal down week last week is a spinning top. This candlestick pattern typically indicates a trend change. After a long run higher, like this year, a spinning top indicates indecision about the path ahead. The buyers are losing momentum to the upside so price typically rolls over to the downside. Chips are behaving like a parabolic commodity and you know what happens to them; yes, a parabolic move higher typically results in a sharp reversal lower.

With the higher high in price on the weekly basis, the chart indicators are in universal negative divergence. The MACD line over the last couple weeks or so is trying to muster-up additional strength but even if it ekes out some additional joy, it would be expected to roll over quickly again. The MACD is neggie d over the last 1-1/2 year.

Price has violated the upper band so a move to the middle band, also the 20-week MA, at 1327, is on the table. A move to the lower band at 1068 is also in play. Holy Smokes; that would be a -34% drop off the top. Note the blue expansion pattern, or megaphone pattern (the handle and mouthpiece are drawn to envision the megaphone). Price popped above the top rail so it will be interesting to see if the SOX returns inside the expansion pattern. If so, the bottom target at 1000-1070, the same area as the lower band, and upward moving 200-week MA at 1019, are all in play. There is a good chance that the year ends with chips down in this sad area. You can also watch the SMH and XSD charts.

Keystone is not playing the chips from either side lately but in a week or two the sector likely sets up attractively for the short side. Those that think the chip party can go on forever are wrong. When the recession hits, business activity will disappear quickly and chip demand will drop. It is comical that many chip prices are plummeting but traders continue buying the stocks with both hands. The SOX monthly chart is in negative divergence across all indicators which agrees with the idea that the semi's will finish the year lower than current levels. 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.