Today's report will compare charts and performance for the Semiconductor ETF (SOXX) and the Semiconductor SPDR (XSD). SOXX represents large-caps and is holding up. XSD represents the average semiconductor stock and it is not holding up. Broad weakness within the semiconductor group is likely to spread to large-cap semiconductor stocks and SOXX. Note that we will cover this and more in tomorrow's Chart Trader Report & Video.
Equal-weight Semis Break Down - Is SOXX Next?
The first chart shows SOXX peaking in late July and trending lower the last few months (red dashed line). SOXX remains above its 200-day SMA and the Trend Composite remains positive, but a bear flag formed here in October (blue lines). Flags are short-term continuation patterns. The prior move (September) was down so this flag is bearish. A flag break would signal a continuation lower and target a move to the next support zone in the 400 area.
The second chart shows a completely different picture. The Semiconductor SPDR (XSD), which represents the average semiconductor stock, is in a downtrend and underperforming. XSD is below its 200-day SMA and its Trend Composite is negative. The lower window shows the price-relative (XSD:SPY Ratio) below its 200-day SMA since mid August. This means XSD is underperforming SPY. Short-term, XSD broke flag support on Friday and this targets a move to the next support zone in the 175 area.
Large-caps semis (SOXX) are holding up for now, but relative and absolute weakness in the average semi (XSD) is a concern. I expect this broad weakness to extend to large-cap semis (SOXX). By extension, this would be negative for the tech sector, QQQ and the broader market (SPY).
Tomorrow at Chart Trader we will cover broadening weakness within the stock market, a handful of leading groups and some bearish chart setups (stocks). Chart Trader reports and videos are published every Tuesday and Thursday. Click here for immediate access.
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Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
Author, Define the Trend and Trade the Trend
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