NASDAQ:SOXX   iShares Semiconductor ETF
SOXX, 2D: Taking a look at the SOXX 2D chart I have drawn out a linear regression channel beginning on November 12, 2021 which was about 7 weeks prior to the ATH print at 557.12 on January 3, 2022. The SOXX proceeded to decline approximately 41% from ATH (557.10) down to its recent low at 326.70 on July 1st, 2022 before rallying almost 30% off the floor to 424.78. So, where are we now, and where are we going next?

Linear Regression: The linear regression channel in the chart is divided up by color and is illustrative of 6 standard deviations of potential price action expressing a 6 sigma potential linear range of 435.18 – 279.37 with the high confidence interval range (+-2SD) from 408.93 to 305.61. Our linear mean is currently sitting at 356.78 with a Pearson’s R^2 indicating a high central tendency at 0.894. the linear mean and is currently expressing a potential linear range of 435.51 (+3SD, red) to 308.20 (-2SD, blue). As we can see the recent rally is filling out the upper end of the linear range, clearly pushing deeply into the upper 3rd standard deviation range off the linear mean. Using central tendency as an approximation of trend strength there is a high potential for price to mean revert down to the 356.78 price region.

Fibonacci Retracements: I have left the Fibonacci Retracements up in the background and have also added white lines to mark the significant levels of 0, 0.5, and 1 retracement respectively. Despite the overextended nature of the recent rally, price failed to breach the 0.5 Retrace at 441.91 which would have gone a long way to indicate a high potential for the lows to be in. It is important to note that if price were to breach the 0.5 retrace to the upside it would reduce the probability for lower lows this year but would not eliminate them entirely.

Elliot Wave: It is my position that we are in the 5th wave down from the ATH as illustrated by the yellow EWT count on the chart. Given the somewhat unruly nature of 5th waves and their increased potential for irrational behavior, we will leave some grace with regard to our expected landing zone. It is my prediction that we will bottom out somewhere in the 334-303 range as illustrated in the yellow, square box. This thesis is in confluence with market trends during mid term election years in the month of September, which is that they have a tendency to decline through the month of September and early October before rallying into the late fall/winter after the election.

EMA Envelope: Our EMA envelope (top box), is a trend based EMA indicator based on the last 40 days. The envelope turned bearish(red) with a body close below the 387.12 price point and would turn bullish (green) if price were to bounce back up over the 405.83 price point. Signal is currently residing in the neutral zone as indicated by the yellow in the top box.

VFI (Volume Flow Index): Our volume flow index is a fixed range cumulative indicator based on the last 130 periods, which on a 2day time frame spans the last 260 days. As we can see the green line representing the volume flow is crossing over its moving average to the downside. Please also see that our VFI signal also failed to breach the zero and has not risen above the zero line since the late March rally.

RSI: Our RSI is sourcing data using a hlcc range configuration to add data point density to the measurement and potentially at the sacrifice of a more discerning measurement that might come from using a close only price range configuration. What we see is our RSI signal currently entering the bearish end of its range (<45).

MACD-X: Our MACD indicator is showing our lag differential (12-26) crossing over our 9 period ema to the downside and beginning to print its first few bars of negative trend coming off the recent rally which began at the beginning of July for the SOXX ETF.

SUMMARY: We have moving average trends rolling over to neutral from being recently bullish, volume flows that have been trending upward recently but not at levels supportive of 2021 price levels, an RSI that never hit overbought and has since reverted back to its median and a MACD beginning to indicate the potential for a downward trend to emerge.

What the above summary of indicators appears to be from my perspective is an upward retracement within a larger downward trend, or what is more commonly known as a “bear market rally”. It is my position that price will decline to its linear mean at 356.78 before making a decision of whether to spill further or consolidate in a range bound, downward trending diagonal. Until fundamental headwinds provide a better catalyst for the technicals to improve going into the late fall/early winter it would not be unreasonable to expect further downside volatility.
We hit the linear mean. Were it not for the economy entering a tightening cycle, a bounce from here would not be unreasonable. However, given the unpredictable nature of the current geopolitical landscape in conjunction with QT beginning, any upside bounce should be limited.
Trade closed: target reached


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