It looks like a Head-and-Shoulders pattern in the SOXX.
With the overall direction of the market (S&P) now pointed down, probabilities are that the neckline will be penetrated.
We still prefer the Basic Materials sector as the primary short opportunity. However, the SOXX is showing itself to be a close second for downside action.
As stated in previous updates, semiconductors are a commodity.
They tend to be hit especially hard and can fall especially fast during an economic downturn.
The set-up is complete (up-thrust) for the SOXX to move to lower levels.
The volatile price action in the SOXX is masking to some extent the power and sustain of the initial downward thrust.
With the S&P apparently topping at this point, it may be unlikely for the SOXX to post a new (correction) high.
The SOXX has moved back up to test resistance. This testing action is similar to that of the other indices (Dow, S&P).
The SOXX has moved higher in its test than Basic Materials.
Once again, that sector (DJUSBM) appears to be the potential downside leader for the next series.
The SOXX was so weak that it never got to our established target area to establish a short position.
It just kept on moving lower and lower.
Now we see that in all the data available, there is no downward thrust more powerful than the one currently in process.
The SOXX appears to have broken its trend-line and has tested the underside.
All while the S&P 500 attempts to move higher.
As noted in previous updates, semiconductors are a commodity. When they decide to turn lower, it can be quite dramatic.
The SOXX is currently at support and the downward momentum appears to be slowing.
Price target areas for trade entry are at this link.
Looking at the daily chart of the SOXX, we see that a trading channel is in-effect.
While the S&P 500 continues to struggle to make a new high (it might or might not), several sectors have already broken to the down-side and are continuing their declines.
Semiconductors are a commodity item and they appear to be succumbing to the overall commodity (gold, silver, copper, oil, coal) decline.
There is still the possibility that the SOXX will push higher into a 38% (or more) corrective move. If so, it may give an excellent opportunity to position short.
The SOXX is at support and will most likely need to obtain more fuel for a sustained break to lower levels.
The area where this fuel is (stop loss orders for the shorts) has been identified and is highlighted in Market Action.
If we get a move to higher levels over the next several weeks, the SOXX may be setting up for a spectacular decline into the September - October time frame.
It appears that the SOXX is not going to adhere to the down-channel as shown in the prior update.
At least, it is not adhering to that channel in continuation with the reversal from the last session.
Markets tend to come back to breakdown or breakout areas to test.
The expectation then, is that the SOXX will test the underside of resistance before continuing on to lower levels.
7/20/15, 4:33 p.m. EST
If the SOXX maintains its current channel and Fibonacci time characteristics, then it may be setting up to reach the target area by the beginning of next month.
Additional detail on Fibonacci sequencing of the SOXX and the SOXS in Market-Action
Update: 7/17/15: 10:17 a.m. EST
Updates to SOXX (SOXS) in Market-Action
The hourly chart of the SOXX shows a very weak pull back to the 23.6% level.
If this area holds and the SOXX declines from here, it may represent significant downside potential.
If we expand the terminating wedge in the SOXX, it becomes apparent that there is a potential for a decline into support at the 75.00 area.
Weekly chart at left shows a top and reversal.
The strategy being explored to short this market involved using the SOXS ETF as the trading vehicle.
Liquidity in the ETF remains low. As such it contains more slippage risk element than what is desired (from a company perspective) at this point.
Standing aside on trade action.
Semiconductors may be considered a commodity.
The long term 30-year commodity cycle peaked in 2010 - 2011 and is now pointing down.
The semiconductor index ETF the SOXX, has continued to move higher and has been resistant to the overall decline.
However, if and when this sector turns lower, it may provide significant profit opportunities.
The prior downward swings during the weeks of 10/10/14, and 3/27/15, provided insight into the lack of bids (lack of liquidity) that are available when the market is under stress.
If this sector decides to deflate just as other commodities such as oil, copper and coal, it may result in a sustained and persistent move lower.
In addition, the Intel acquisition of Altera, is a contrary indicator. This may be the final data point that indicates a long term top in the SOXX.
Trade Ticket number SOXX-2015-007, is in-work. Scheduled release date is TBD