As many of us know, the semi-conductor space is a risk on sector and when it makes a big move, it garners a ton of attention. So after Friday’s 3% move higher, a follower reached out and asked me my opinion on the Semi-Conductor Sector. So here are my thoughts.
The first place I like to start is with the question: Was there any price action that would have clued me in to such a rally? This is for my own chart memory, so that I can continue to pick up patterns and store them in my very deep pattern memory within my born to trade brain.
If we look at SOXX on the 30 minute time frame, we can see that Friday, it gaped above an inverse H&S. That target is 90.86 which coincides with the 76.8 fib retrace.
So that area may become resistance. It is not a fib that gets much attention, but it usually a last stop for me. in selling a rip or buying a dip. If a stock can clear it, I start to give it the benefit of the doubt that it may indeed breakout and that selling into resistance may not be the best idea. (This holds true for a pullback into it as support as well, when it breaks it, most of the time, it takes out the low.)
The big picture is very much worth watching though as it may have implications for the market overall. The reality is there is a brick wall of resistance ahead, so we must be very aware of that. It is probably a better strategy if bullish to wait for levels that are resistance to start showing as support as right now, although it is trying to look healthier, still has it’s work cut out for it.
- To start, we are in a 21 point trading range, with the potential of a double bottom cup/handle type patter to potentially break out of. That is bullish if it can indeed do so.
- I will watch for the April highs to become support rather than resistance as a first step (i.e be careful chasing a breakout)
- Then see if it can take out the prior swing highs at 94.
- If it can do that, that would give it a nice chance for a run up to the 2015 highs.
- If we can clear that overhead supply that opens the door for a move to the 114.98 measured move target.
Here is a weekly picture of the same thing. We basically have a range within a range, so it is hard to get too crazy about any move until we start to see these ranges broken. That being said, a win for the bulls is the hold of the prior trend as support after putting in what looked like a lower high in April.
However, while this is still a trading range, the risk reward favors selling resistance (particularly on failed breakouts above key levels of resistance) or buying support. When the range can become support, we can start thinking about buying dips above it into the target.
Now that we have talked upside, the risk here is this resistance level is firm and the pop is sold. If so and we break down below the range, we have a target down in the 50s.
I don’t know what will happen, but these are the things I will be watching for in this sector and trying to place my risk reward plays accordingly.