Of Course the SOX Follows Technicals

• Posted by Greg Harmon
• on October 18th, 2011

The Philadelphia Semiconductor Index ($SOX) is often used as a barometer for economic activity. So what is it telling us? It likes math. It should not surprise you that an index that deals with the technology industry loves technical levels. Take a look.

The 10 year weekly chart above shows a few key factors. First, the significance of 560 as a triple top area, has proven significant resistance since falling under it in 2002. Next the support of both the 380 and 320 areas holding downward moves and stalling upward ones at every chance since 2005 with the exception of the Financial crisis of 2008-2009. The third thing to note is the Inverted Head and Shoulders pattern. After breaking through the neckline it has since come back but failed to negate it with a move below the right shoulder. It is now back at that neckline moving higher. The target for the pattern incidentally is at about 635. But probably the most interesting feature is how it has moved between the Fibonacci levels associated with the move lower during the financial crisis. Notice the slight pause at both the 23.6% and the 38.2% retracement followed by the oscillation between the 50% and 38.2% Levels, with a brief visit to the 61.8% level. Finally a jump higher to the 76.4% level and fall back to the 38.2% again and now at the 50%. And do you notice where the neckline of that Inverse Head and Shoulders sits?

The analysis of the chart suggest that a move back through that neckline and over the 50% retracement will find resistance again at the 61.8% level at 414.71 and then 470.7 above that. A rejection at the 50% level will find support lower at the 38.2% level and then the 23.6% level, which would negate the Head and Shoulders. This would also create a Head and Shoulders top with a target at 160, near the 2008 low. Other indicators are mixed with the Relative Strength Index (RSI) struggling to get bullish, unable as yet to get over the mid line and above 60. The Moving Average Convergence Divergence (MACD) indicator crossing positive supports upside though. Which will win out will tell over time. But pay attention to the Fibonacci’s until then.

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