SOX Semiconductors Daily Chart; Head and Shoulders (H&S); Potential Island Reversal; Gaps; Lower Band Violation; Aroon Negative Cross

Semiconductors are taking the pipe. Semiconductors are the key stock market indicator along with Dr Copper. Housing and autos used to matter, also trannies, but they take a back seat to chips nowadays. The US housing recession continues for 9 months (only wealthy cash buyers are active), manufacturing remains in a recession, and the Dow Jones Transportation Index (TRAN; DJT) is in a 2-month downfall. No one cares. It is Strange Days and even the word 'trannies' means something different now.

Nonetheless, semi's are at the top of the heap now. For decades, the chips lead the upside in the US stock market and technology sector. Almost every product made nowadays has a chip in it. The AI hype only serves to fuel the semiconductor fever. Independent Taiwan is a major focus since they produce a lot of the advanced chips and technology and the sick communists, Dictator Xi and the CCP on mainland China, want to take control of the island nation like they did to Hong Kong.

So that is some of the backdrop of the semiconductor arena as the SOX daily chart prints a potential H&S (head and shoulders) top. There are a couple left shoulders but the H&S pattern clearly jumps out at you. A couple of nice necklines fit the pricing data one at 3486 and the other at 3400. The head is at 3870.

Thus, 3870-3486=384, take it away from 3486, for a downside target of 3102 (blue line) if the 3486 fails. The 3486 failed and interestingly, that is where the 100-day MA crossed as well so that failure is a big negative for chips going forward.

Taking 3870-3400=470, take it away from 3400, for a downside target of 2930 (purple line) if the 3400 level fails. Price is deciding now if it wants to give up the 3400 support and neckline (bounce or die decision).

Price prints a lower low, slightly, and that allows an assessment of the chart indicators and you can see that the histogram, MACD line, stochastics and ROC are positively diverged, wanting a bounce in the daily time frame, but the RSI remains weak and bleak wanting further lows before it bounces. The MACD and ROC also have momo in the very near term to the downside. S&P futures are weak this morning so watch the chips since a lower price may pull more chart indicators to the negative side delaying the relief rally in this daily time frame by a couple days.

SOX is close to bouncing in the daily time frame but not quite. Perhaps a drop today and tomorrow will set the stage for a relief rally but the weekly chart is sick wanting more price lows on the weekly basis. Thus, when the chips start to rally on the daily basis, perhaps by the end of tomorrow, or starting early next week, the multi-day rally after that will fizzle and lead to lower lows for SOX for the weeks forward.

The orange circles highlight gaps big enough to drive the proverbial truck through. They will need filled at some point. With the big gaps higher in May during the AI orgy, the SOX is on an island above 3400. There is the potential for an island reversal pattern where, within only a couple days, price may plummet like a rock down to the blue line. That would get everyone's attention.

Price has violated the lower band at 3408 so a move higher (recovery rally) to the middle band, also the 20-day MA, at 3566, is on the table. The 20 is rolling over lower so price may come up to meet it at the confluence of the 100-day MA at 3508, so perhaps a relief rally to 3520-ish where the SOX will then roll over and completely die on the weekly basis.

The pink box for the ADX shows how the rally higher was a strong trend during June but petered out in July. The SOX is dropping for a couple months but the ADX is only at 17 not yet identifying the downside as a strong trend lower. Once the ADX moves above 27-ish, which it likely will considering the weak weekly chart, that will signal that the trend lower is a strong trend lower.

The Aroon performs the negative red cross so the bears are in charge in chip world. 100% of the bears believe that chips will continue lower forever. Over one-half of the chip bulls still believe that semiconductor stocks will continue higher going forward. These are the dolts that will buy the dip over the next couple-few days.

You can adopt the same analysis as you review the charts for SMH and XSD. Of course, stocks such as INTC, AMD, NVDA, MRVL, GOOGL, MSFT and AAPL will impact the chip arena. Keystone does not hold any positions long or short the chips right now and probably will not play the coming bounce in the daily time frame since it will require nimbleness due to the weak weekly chart (do not marry the position if you play the pending rally on the daily basis). The play may be to wait for the bounce, let the rally play out in the daily time frame to bring price back up for neckline back kisses and perhaps the recovery to 3520, and at that time, say early October, as the daily chart and 2-hour chart go neggie d, shorts against the chip sector would be in order. 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.

Note Added 9/21/23, Thursday Morning, at 9:54 AM EST: SOX pukes to 3355 levels not seen since May. The 3400 neckline fails. ARM loses an arm.

Note Added 9/23/23, Saturday: SOX 3365. As the ole saying goes, 'the chips are down'. SOX loses -3.2% this week with a low at 3337. SOX loses its shirt, and socks, dropping from 3875 to 3337, a -14% crash, in only 7 weeks. If chips are sinking faster than Keystone's jokes on open stage night, and virtually every product nowadays has a chip in it, what does that mean? Semiconductors led the US stock market to ruin in early 2022 beginning the multi-month collapse.