Channel Breakout in the Chips?

The Philadelphia Semiconductor Index formed an interesting pattern this month as the market pulled back. It initially dove toward 2100, and then managed to hold that level even as the Nasdaq-100 and S&P 500 proceeded to make lower lows.

Not surprisingly, that relative strength led to more bullishness this week as SOX jumped above its 50-day simple moving average ( SMA ) on Monday. It’s also fought its way into the large bearish candle from September 3, while NDX is only back to its September 10 range and SPX remains around its September 16 close.

The key pattern we want to highlight today is the sideways channel in SOX between September 4-25 because we’re now seeing a breakout above that consolidation range. This may create the potential for chips to lead other tech stocks. We could even see an accelerated move if SOX retraces the fast price action from September 3.

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