The Semiconductor Index (SOX.X) 350.93 -4.49% had been one of the strongest sub-groups of technology earlier this year, but bearishness has prevailed and this group now threatens its September lows. The group looks very oversold on a near-term and longer-term basis (as depicted by the sector bullish %), but that probably won't keep the SOX.X from undercutting the September lows of 343 just to see what kind of selling can be triggered in the group.
Semiconductor Index Chart - Daily Interval
I've "rolled down" my retracement bracket on the SOX.X with the lower end anchored at the bearish vertical count from the $20 box of the SOX.X and its point and figure bearish count of $260. With the current market environment more negative and buying in Treasuries today, I'd expect the SOX.X to violate the September lows. The first area I would then be looking for some technical- based short covering to take place would be the 332 level. Resistance should be firm at the 405 level.
As much as the market appears to be keying on breakdowns to new lows, a violation of the September lows could be a near-term "climactic" selling point as technology bulls see their last hopes of a summer rally fade. That could then trigger some type of "tech capitulation" with which bears come in and cover some positions on the weakness.
It should be noted that in September, Dorsey/Wright and Assoc. Semiconductor Bullish % reached the 6% level. Last night's bullish % reading for this sector was 16.27%, recovering somewhat from a recent reading of 12%. Levels below 30% are considered "oversold" while levels above 70% are considered "overbought." In December of 2002, this indicator reached the 78% level after September's 6% reading. Complacency by bearish traders should not be an option.