Traders Are Worried About the SOX. Does That Mean They Are Due for a Bounce?
The Market
Bear with me while I share some anecdotal evidence with you. I promise when that section is done, I will have more hard data for you.
Can we talk about the SOX? Oh man, were the semis awful today or what? They have been so awful that a strategist who used to be a semiconductor analyst and up until about a month ago, was bullish on the semis, was asked about the semis today, and he gave us a word salad. So what does this former semi analyst like? Energy.
The folks on Fast Money, who spent a great deal of time telling us that as long as the SOX was doing well relative to the S&P, the market was fine. But they haven’t mentioned that this relationship peaked in the third week of June. Instead, they have been ignoring the move down in semis. Today, across the board, they were bearish on semis (but fear not, they were not bearish on the market—yet I thought that the SOX to S&P ratio was their guide?!
Then came the charts on social media. Remember back in May, all the charts with ‘the SOX hasn’t been this far above its whatever moving average’? Today, the barrage of negative SOX charts began. Stuff like ‘there are zero members of the SOX above their 50 DMA’. Or the SOX hasn’t had one percent swings like this since (fill in the blank).
I even got an email with a chart of the SOX showing some cycle that will take it down another 20-30%.
Finally, there were several columns, not by those I would consider market technicians, either, about the head and shoulders top in the SOX.
Now we can talk about data. The SOX did not make a lower low today. Oh, it wasn’t by much, and you’d have to look up the actual numbers to see it, but that low from Friday, July 17th, was a bit lower than today’s low. As I did my charts, I made a partial list of semi or semi-related stocks that did not make a lower low. Some even closed green on the day. CAT (yes, it is related to data centers and trades like a semi), ARM, JBL, MU, WDC, AVGO, and QCOM.
Overall, the number of stocks making new lows on Nasdaq is still over 200, but is far fewer than the 342 we saw last week. But I have been looking for the QQQ volume to rise (it hasn’t). I have been looking for the VIX to get jumpy (it hasn’t). I would love a day where everything fell so we could see some hysteria. Yet the volume in SMH, an ETF to be long the semis, might have been a record. It was certainly the highest in at least three years.
The Nasdaq Momentum Indicator gets oversold this week. Even when I walk Nasdaq down another thousand points, you can see the Indicator rises. Nasdaq has now been red for seven of the last eight trading days. Sure, it can get worse. Sure, the semis can get worse. But they are due a bounce this week.
New Ideas
My pick a few weeks ago in the semi space was Western Digital ($WDC) because I envisioned it bouncing off this line. So, for the sake of continuity, I would stick with it because the stop is so clear (under that spike low from Friday, July 17th). Back then, I viewed this as a trade, and for now, I still do. If it rallies and cannot get over 600, then I will join the bears in thinking this line breaks.
As a follow-up, I recommended Packaging Corp of America ($PKG) back in late May/early June, and it finally got going last week (on earnings). I don’t love that there was no follow-through today, so I would take a little something off the table. But there is a next measured target near 270.
Today’s Indicator
The 30-day moving average is overbought. This is one reason I think the ‘others’ should play catch down in August.
Q&A/Reader’s Feedback
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There will be those who draw the black line and think this is terrible for Tesla ($TSLA). I would not disagree with that. However, my job is not to tell you it’s terrible; if you own the stock, you know it’s been terrible. My job is to determine where it might go in the coming weeks. I suspect TSLA gets oversold somewhere near that blue line (280-90-ish). There is decent support down there. And there is a short-term measured target down there. One point I would make is that on a daily basis (this is a 3-year weekly chart, so it is not obvious), TSLA has a habit of spending quite some time at support, developing a tiny little bottom, before it rallies well. If you are looking to bottom fish, I would say you have time.
VGK, an ETF to be long Europe, was a favorite of mine in the fall of 2024. I would call myself neutral now. It hasn’t done anything wrong, but if I am correct—a big if!—that the ‘others’ should play some catch down in August, then VGK would be vulnerable since it has very little tech in it. Breaking 87 would not be good.
We already know I am no longer a fan of the banks, and Goldman Sachs ($GS) would be in that group. Maybe it comes down to 1000 (short-term support) and holds, but the way this stock has formed an outside reversal today has me thinking 1000 breaks, and then 950-975 holds on the first trip down. It is also an ‘other’.
