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Advanced Technical Analysis - SOX



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.


Much like the NDX, we had expected the SOX to relieve the oversold condition of the daily and hourly charts with a move toward 430-450, our long standing resistance targets, off of the lows set on 7/28 before we could get another good downturn. Alas, the underlying bearish trend is powerful enough to have truncated what would have been a "normal" corrective bounce to 430-450.

What this means is that, again like the NDX, the very bearish interpretation of the Elliott wave count for the SOX is the most probable one: it suggests that the peak in the SOX in January at 560 was the top of a corrective bounce off the lows from October 2002. This count implies that the lows from 10/2002 could in due time be taken out and that new lows could eventually be seen in the SOX beneath 209. Our original SOX comments on July 1st suggested then that if the 410-415 "area" did not substantially hold prices, then the more bearish interpretation of the price action off the January peaks would become operative, suggesting at a minimum that the 340-360 area would be the next Fibonacci target. That remains our view today.

For now, one more up-down sequence in the SOX could, just like the NDX, provide for a clear "5" waves down from the 8/2 peaks. From that "5" waves down we could then expect a moderate bounce that could provide for the next possible decline. The analysis suggests a preliminary 5th wave target lower of 372-384 depending on where the current bounce we are seeing off yesterday's AM low takes prices. In either case, if prices do find a minor degree 5th wave low in the 372-384 zone (we'll be more specific in update notes) the most probable and bearish interpretation calls for a 2-3 day bounce to 390-400 or so. That zone, particularly if accompanied by topping indicators, could imply the beginning of the expected move to at least 340-360 if not materially lower in the next few months (not advice).

For now then, we remain patient: we would not be attempting to pick a bottom here but rather waiting for the 5th wave low to be put in and a bounce to the above cited resistance to take place. To the degree that we get a high confidence analysis on that 5th wave bottom in the 372-384 area, we will cite it in a note.

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No positions in stocks mentioned.

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