I continue to believe the semiconductor sector is setting up to disappoint those who buy it as a momentum-based market leader. That is due to fundamentals we discussed previously. As also discussed, the technicals have been indicating otherwise, with a measured recovery target of 700 to 710 still in play. SOX has taken out the October high and can continue higher to the target, the June gap around 720 or even a test of the highs. This continues to look like a setup for a shorting opportunity, but it is important to realize that you can be right for extended periods before the market votes that way in its pricing. I am trying to exercise extreme patience here. I still hold an initial short on LRCX and have not decided yet whether to obey stops or hold in a gung ho longer-term bearish manner. For the purposes of our updates, let’s just generally consider the funda vs. the technicals for the sector itself.
The daily dome on the WLSH was poked yesterday.
SPX should not make a higher high to the late October high of 2116.48 and close the week above it, or the bear case takes a big step backwards, in the short-term at least.
The dome appears intact on the monthly but there is no more room for this pattern. Considering that SPX is back above the bottom broken trend line, the bull case asserts itself if the November high is taken out and the dome is broken.
As for the US dollar, it seems vulnerable to a reaction as it shimmies along in a little (daily) wedge with momentum fading (MACD). But we should remember that USD is in a bull market. If it gets pre-FOMC jitters and corrects or perhaps sells the news of the FOMC itself, we would look for support at 96.50 to 97, which has moving averages and lateral congestion. Sometimes these wedges break upward, so an alternate but less favored scenario is resumed strength and upside blow off into FOMC. If that were to happen I’d bet dollars to donuts that Uncle Buck would then sell the news and take a harder correction.
Gold’s MACD and RSI seem to be doing what they did in March and July.
Gold’s CoT is doing what it did in March and July.
Gold bounced in March and August, so keeping it simple we’ll just state that the elements are in place for the anticipated bounce to come about. Now it is up to price to bear that out. Resistance starts coming into play at 1100 to 1120.
Silver is still dealing with the August lows as resistance, but MACD looks like it can turn. If a bounce materializes resistance is 14.50 to 15.
The Silver miner ETF is MACD triggered with RSI starting to look decent. A reasonable bounce target would be 22 to 23.
GDX actually turned its RSI green (50+) and MACD is triggered up. 14.50 is key resistance as it had been key support. If it can take out 14.50 the next objective would be to see if it can make a higher high above 17.04. It is easy to write that and quite something else to have it happen. But through all the degradation in this sector GDX is actually on a lame series of higher highs and higher lows if we use the Sept low-Oct high-Nov low. The SMA 200 (currently 16.84 and declining) will have a lot to say about that.
Bottom Line
US Stock Market
Bullish technicals be damned, I think the Semi sector – barring a prompt turnaround in its fundamentals or a manic market phase that just does not care about fundamentals – is setting up to provide a shorting opportunity. This may not pay out until Q4 2015’s earnings reporting season in Q1 2016.
As for the broad market, we have carried two possible scenarios (resumed correction or resumed bull ‘manic up’) for a reason. That reason was that they were both in play. The market is right at the parameters that would keep the bear favored. A little higher and a strong weekly close and the bull would take the probabilities lead.
US Dollar
I only looked at it because a subscriber asked me about it. It is in a bull market but subject to correction either leading into FOMC or coming out of it. This seems like a casino bet to me because so much of it is based on what an interest rate manipulating entity does. Here let’s recall how often the FOMC members have tended to mention Uncle Buck’s name in recent meetings. Neutral seems like the proper stance at the moment.
Gold Sector/Precious Metals
Stellar CoT and daily charts that look like the anticipated bounce is coming about. Play said bounce as you will but remember it is a bear market. I will be interested to watch the CoT data leading into FOMC if/as the bounce plays out.
Final Note
If USD corrects, commodities can certainly get a pop too. They are not covered in this update because the charts are generally not as readable as those in the precious metals, for example. Oil is still a mess, copper is trying to put on a feeble bounce, uranium could get interesting and we’ll update the other suspects as more information comes to light.
