Semiconductors: Indicator for Tech and Broader Market

Gary Tanashian submits: We have been using the Semi's as a leading indicator for technology and by extension, the broad market. A look at the SOX chart shows it has long since meandered across the uptrend line and currently resides in a consolidation pattern that at this point looks more bullish than anything; downward sloping after sharp rally.

But the SOX did break the uptrend line and that was an early warning about the current rally. A nice scenario would be the SOX failing at resistance (red) and the broken trend line in the low 460's and dropping all the way back to the 415 area for a test of the lows, leading the broad market lower for a much needed correction in the process. That would be a buying opportunity depending on the economic and liquidity backdrops at the time. But if the SOX strengthens from here, recall one of our original targets was over 500 off of an inverted head & shoulders bottom (head below 390, right shoulder at 430, left shoulder not shown on this chart and neckline around 450).

Unfortunately, we do not control the markets, we merely take our clues from them and adjust risk vs. reward along the way. The SOX is one of those indices that provides early clues and should be watched closely. A tradable proxy for the SOX is the Semiconductor Holders ETF (SMH).

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