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Advanced Technical Analysis - SOX

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Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Once again we find ourselves publishing a note on the SOX that suggests that the bounce from the September lows may be nearly complete. You have read this before from us which means that the choppy corrective, overlapping move up from the lows on 10/15 continues to extend higher seemingly defying the bearish indicators that are forming more and more.

The very short term pattern is open to a number of interpretations: one of which suggests the peak registered last week was an important top and yet another that suggests that another slight new peak is possible above 424 before the SOX resolves the substantial hourly divergences that are apparent. Either way, our conclusions from our note last week remain: the SOX has been the weakest, internally, of any of the indices. The wedge-like pattern, combined with the hourly Demarks, the extraordinary momentum divergence and a potentially completed Elliott wave pattern off the October 15th lows, all make (1) the long side extremely risky here and (2) the bearish view potentially good from a risk/reward perspective based on the analysis (not advice).

The conservative approach remains the same: waiting for a "5" wave down from whatever peak is registered and/or a break of key support at 393. Either one of those conditions would provide solid evidence of a potentially important trend change. The aggresive interpretation provides a few options: waiting for a new peak above the 424 peaks from 11/3 before a test to the downside, maintaining the bearish view and looking to add to it on a new peak above 424 or finally, covering any bearish positions and await a move above 424 with hourly Demark indicators (they may register in the next several hours of trading) with trade moving thru 436 negating the bearish view and forcing us to stand aside. Again, not meant as advice but rather simply illustrate the possible interpretations.

The big picture remains the same: the SOX has put in a very corrective looking bounce off the September lows and is diverging massively against the NDX which is close to putting in a new peak for the year. These two conditions suggest that the dominant trend for the SOX is down and that once this mean-reverting bounce for the SOX completes, the dominant bearish trend from Q1:04 could resume.

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No positions in stocks mentioned.

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