Does SOX Signal Sell or Stay Solid in Stocks?

• Posted by Greg Harmon
• on September 25th, 2012

The Philadelphia Semiconductor Index, $SOX, just can’t seem to make up its mind. Just a week ago it was building a bull flag in a symmetrical triangle, anticipating a breakout toward the top near 425. It is in the action zone of the triangle, about 2/3 of the way through, so it was exciting. Now, one day later it is back at the center line and looking ready to head lower. Bummer. It is going to do what ever it is going to do. Watch for a move under 390 on the weekly closing candle to signal a retracement lower yet again with the 355 area as a target. Can the broad market survive the SOX

falling 9%. Perhaps if it is due to rotation. A look at the Technology Select Sector SPDR, $XLK, shows it at better than 10 year highs but with a Relative Strength Index (RSI) that is rolling lower and a Moving Average Convergence Divergence indicator (MACD) that is about to cross to negative. Both show bearish short term momentum, despite the uptrend. A 9% correction in this

Sector SPDR only brings it back to the 200 day Simple Moving Average (SMA). That is not a rally killer. And 4 sectors, Consumer Discretionary, $XLY, Consumer Staples, $XLP, Healthcare, $XLV, and Utilities, $XLU, are all looking strong to pick up the slack. Yes maybe the SOX is showing ominious signs, but the market is also not dead yet.

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