SOXX is on the verge of a major breakdown, much like the one that lead to the melt down in Q4 of last year (followed by a ~20% drop after the trend break). However, we are not there yet because we are resting on support. The main, long term pattern we are looking at is a bearish rising wedge. Within the wedge we also have a symmetrical triangle which was entered from above, which suggests - as a continuation pattern - that price will follow lower. Keep in mind there is also another green trend line underneath which acts as a type of extra confirmation which must be broken for a definitive sell signal. A sell signal will be confirmed once we have a daily close below those trends, and especially if we have a weekly close below. Given how resilient this market has been, it would not be unreasonable for SOXX to put in a marginal new high first, thus extending the negative divergences on the PPO and RSI before the grand finale to the downside. Since we are very oversold on the 1-hour candlesticks and have positive divergences building on the market futures (ES and NQ), we can at least expect a small thrust up to the resistance shown as the double green lines above. Either way, once we crack below, there will without question be volatility, maybe even a back-test of the broken wedge pattern, but ultimately I can foresee SOXX going down to the second yellow uptrend shown below. The lower yellow uptrend is one of the two supports I have drawn from the November 2008 lows, following the Great Recession. Both have acted as support and resistance many times, thus showing that both are important levels that price will abide by. Such a move would equate roughly to a 25% drop, depending from which point we break down from.
For this trade, we will be using SOXS, a triple levered inverse ETF of SOXX. I would avoid the use of put options since that involves gauging the time frame in which this move occurs which only adds even more difficulty to an already complex setup. A suggested stop loss would be anywhere just above the top of the daily candle which confirms the initial break down.
For this trade, we will be using SOXS, a triple levered inverse ETF of SOXX. I would avoid the use of put options since that involves gauging the time frame in which this move occurs which only adds even more difficulty to an already complex setup. A suggested stop loss would be anywhere just above the top of the daily candle which confirms the initial break down.
Comment:
We have hit the top of the bearish rising wedge, confirming the divergences' extension and so far reversed. I have begun scaling into SOXS as of yesterday with a stop having been placed just below its recent lows.
Comment:
Given my flexibility with time, I had sold SOXS once SOXX was caught up in that double support/resistance zone (~214.50). It was also showing to me that price was resting on gap support. As of now, new highs in the market on low volume only managed to extend the divergences so I will be restarting my position in SOXS soon this week.
Comment:
SOXX took out the highs however, from a technical stand-point, this move is not that significant. The volume on all the indexed ETFs is abysmally low so I doubt how sustainable this rally is. Moreover the divergences simply extended which casts more doubt over any follow through by the price. On Wednesday we will likely get a rate cut from the Fed which in my view will be a sell-the-news event just as the last 2 were.