Stock Chart PHLX $SOX

Posted by downtowntrader | 1/27/2009 08:08:00 PM | 0 comments »

Stock Chart Analysis Phlx Semiconductor Index

I wrote an article recently for Investopedia regarding some semiconductor stocks that were looking bullish to me. The Semi's continue to look decent to me, and it's always a good thing when they lead the Nasdaq and thus the markets higher. I decided to post an analysis of the $SOX index to illustrate what I'm seeing.

The first section of the chart shows a relative strength ratio between the $SOX and the S&P500. Notice that it has been rising for over a month and has been finding support along the trend line shown. The next section simply shows a positive crossover from below 20 on the slow stochastics indicator. While I don't use this as a trading signal, it does show that the stock is only just reversing from an oversold reading and could still have plenty of momentum behind it. Its also showing a positive divergence in that the stock is well above where it was on the last stochastics reading below 20.

In analysing the price action, it looks to me like the semiconductors broke the downtrend in mid December and began to trade sideways in a consolidation. It has been attempting to build a base for the past three months which resembles a reverse head and shoulders. I drew an internal trend line which shows a price level of importance as price has been repeatedly trading in this area. Think of it like you would of the mid area of a regression channel. The semiconductors are in the middle of their bands and have yet to confirm a move out of the lateral trading range. I would favor an upside breakout, but in my eyes the breakout levels to either side are very clear. While all eyes are on the financials, I am looking to the semiconductors as one of my leading indicators on whether the markets will rally from here.

Good Trading,