Upper gap filled. Lower gap open. Hold immediate support or it’s going to get uncomfortable.
My view of the Semi sector is that it is much less cyclically volatile and more interwoven into a much wider array of industries and end market applications than the ‘traditional’ and super volatile Semi sector, so dependent upon personal computing and some other areas related to computing . The sector is not going anywhere for long unless the whole system crashes and they turn the macro lights out. Then we’re all in cabins sitting on gold and guns.
But as we have noted, corrections and bear markets will come to this previously overbought leading sector, as they will come to broad stock markets. So with that, a quick checkup…
Technicals are one consideration, and the SOX daily chart has dropped about as anticipated for a normal correction and will probably fill the upper gap. Depending on how the broad sector earnings go (see below for a negative hint), I’ll consider reducing positions sharply and wait for the next cycle. Again, I want to see more forward guidance, market reactions, and evaluate the tentative state of the broad market, respecting the chart as well. All things being equal I will tolerate this week’s volatility as FOMC week shenanigans. But I’ll respect technical limits and the broad market’s status as well.
At this moment I’ll hold most if not all positions to see if we can get a gap fill and reversal in the short-term. SOX is somewhat oversold.
As to the lower gap, from this week’s report, #690…
I consider SOX to be still on that test of the SMA 200, especially with the upper gap still left to fill. But if it drops below 3170 or so, it’s going to start getting dicey, as in cyclical ‘bear market’ dicey. Can a bear market ensue? Sure, even if supply chains get kinked again or demand starts to flatten out (i.e. growth decelerates).
This caught my attention this morning, and I want to get a feel for general Semi sector results this earnings season. If more companies miss/have missed expectations, there could well be a more bearish phase ahead. Teradyne is a major Semi Test Equipment supplier. First, let’s see if the technicals hold up.