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I hate it when that happens

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Technology stocks are slumping today and leading the various sector declines as the widely follow Semiconductor Index (SOX.X) 282 -5.94% and various components within, which had been downgraded by just about every firm on the Street in the last two weeks starts to lose some of the elasticity or stretch higher it had been showing since its October lows.

For technology bulls, they hate it when this happens. Like a good pair of socks that looses the elastic band at the top of the sock, when the elasticity gives, then the socks usually fall down around the ankle. For broader technology, the recent break back below the psychological 300 level and further declines today does not bode well for technology in general.

Semiconductor Index Chart - Daily Interval

While both the NASDAQ Composite (COMPX) 1,324 -2.6% and NASDAQ- 100 Index (NDX.X) 976 -3.17% were able to rally back near their August highs, the Semiconductor Index (SOX.X) was only able to retrace 80.9% of its August highs to October lows. Since reaching a low in October, today's break below 50% retracement has the SOX violating 2 levels of retracement to the downside, which is the first time we've seen this type of technical action since the rebound from the base. Bulls caught above 306 will now be looking for rallies to sell into, while bears will also be looking to leverage off that level for short/put entry points on rallies. Near-term support comes in at 270 for a short-term bounce.

A quick look at the sectors internals has Dorsey/Wright and Associates Semiconductor Bullish % (BPSEMI) from Friday's action reading "bull confirmed" at 56.80%. It would currently take a reading of 50% to have the sector bullish % slipping back into a column of O.

One can envision several stocks in the group retracing some recent bullishness, and building some columns of O (supply) on their point and figure charts over the last three sessions. This perhaps sets up a 3-box rally back into a column of X over the next couple of days and then another leg lower, which would generate sell signals. Plenty of time for bears to be performing some relative strength scans on semiconductor stocks that trade BELOW trend, with weak relative strength versus the SOX.X and the broader S&P 500 Index.

Jeff Bailey

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