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Semiconductors holding up

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The Nasdaq-100 (QQQ) continues to hug the 50-pma on the 60-minute chart. After Prudential upgraded The Semiconductor Index (SOX.X), they became the stocks responsible for preventing a further decline in the Nasdaq, currently up 0.42%.

Semiconductor Index Daily/60-Minute Chart

Starting with the daily chart, we can see that the Semiconductor Index (SOX.X) failed at the 200-dma before pulling back. A bullish hammer that formed yesterday may have marked the end of the two-day decline. A "hammer" is a one-day candlestick pattern with a long lower shadow (at least twice as long as the body), a very small upper shadow, and a small real body. The interpretation is that strong selling created the long lower shadow, but buyers were able fight back and end the day as a draw. While candlesticks can signal possible reversals, no pattern is an island. When a candle forms on a daily chart, I like to drop down to the 60-minute chart to see what happened. On the 60-Minute chart we can see the decline in the SOX cut through the 50% level like a hot knife thorough butter, and finally stopped at the 61.8% retracement level and 200-pma. This formed the long lower shadow, and the subsequent bounce back to the 50-pma caused the small real body of the candle yesterday. The hammer's inability to spark a sharp reversal today is due to the overhead resistance at 666 (38.2%) and the overall bearish sentiment, but we can now see how a combination of the technicals and fundamentals is helping the SOX to hold up better than the rest of the market today.

Jeffrey Canavan
Assistant Analyst

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