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.
We're updating our note on the SOX dated 5/19 as prices are reaching a critical resistance point that could help traders determine if the 5/3 lows were critically important to the intermediate term trend or simply a pause in the downtrend that started in January. In that 5/19 note, we cited 479/80 as a key Fibonacci projection; prices today ticked at 478.07, so now seems like a good time to go over the technical indicators again and try to determine if prices will move meaningfully through the 479 area (bullish) or will be turned back by it (bearish). From the lows on 5/17, a clear minor 5 wave impulse move up completed on 5/19, with a pullback to the 61.8% support level on 5/20. The move from the 5/20 to today's high has not been cleanly impulsive save for the move up from yesterday's lows. All of this is to suggest that the pattern still looks corrective to us unless prices can move decidedly up from here without overlapping with the 470.67 5/19 highs.
In other words, for the bullish case to gain merit, the SOX needs to advance well past the important 479 area into the 495/500 area without a correction that overlaps 470.67. For the bearish case to have merit, the 479 area (+/- a few points) needs to contain this advance and turn prices back down while overlapping the 470.64 price area. Interestingly, hourly Demarks are set to potentially register an important trend exhaustion signal if a new high above 478.07 can be seen in the next three hours. In addition, the 479/480 area is the region for an important Fibonacci projection: 479 would make the current wave up from 5/17 equal to the wave up from 5/3 to 5/11; a common relationship in a bearish zig-zag correction. The balance of the technical evidence suggests then that the 479/480 area will contain this advance and turn prices back down which would be highly bearish and suggest that new lows beneath 435 will eventually be seen. Only a sustained move toward 495/500 will make the bullish interpretation have merit. For now, we'll await clear evidence that 479/480 has turned prices back down via a clean 5 wave move lower from this area or that a move up toward 495/500 is underway. Stay tuned: the SOX is a great leading indicator for the larger market, so it might help us understand what trend is playing out in the NDX, SPX and INDU.
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