While I've been suffering from flu symptoms the past couple of days, the thought of trying to eat a potato chip has my face turning green.
Forward earnings guidance from chip-related names like Novellus (NASDAQ:NVLS) $34.40 -14.5% and Altera (NASDAQ:ALTR) $22.52 -6.71% helped set a negative tone for today's session, where anything chip-related had a bull's face turning red. The Semiconductor Index (SOX.X) 517.42 -4.44% lead broader market declines, where the bulk of yesterday's gains for the major indices were erased.
In short, technology bulls appeared to have been caught with their SOX down, and while the invention of elastic replaced the need for socks-suspenders, SOX 500-504 looks to be an important near-term level of support.
U.S. Market Watch (01/27/04 Close) -
I've shown my QCharts list of major indices and sectors, where today's trade saw a broadly lower trade, with the technology portion (MSH.X thru XTC.X) suffering the bulk of today's selling. I've displayed today's percentage changes (Net %) as well as 5- day net percentage change (5DyNet%) and 20-day net percentage change (20DyNet%), which gives us a snapshot glance at where we've been and where things are at.
While I've highlighted the Semiconductor Index (SOX.X) as tonight's "sector of focus," the Disk Drive Index (DDX.X) 137.19 -1.69% has been a weak technology sector of late, where building competitive pressures in the flash-memory markets has weighed on names like SanDisk (NASDAQ:SNDK) $58.14 -3.66%.
Semiconductor Index (SOX.X) - Components (01/27/04)
Here's a quick look at the Semiconductor Index (SOX.X) components, where NVLS, ALTR and MXIM paced declines. I've placed PINK asterisks by those components that are components of the NASDAQ-100 Index (NDX.X) 1,519.23 -2.21%, where any loss of semiconductor strength/leadership may be a bad omen for the NASDAQ-100, and perhaps broader technology. I do take note of Micron Technology (NYSE:MU) $15.71 +4.73% being a lone gainer in today's trade. Micron makes DRAM chips, which are perhaps the most commoditised portion of the semiconductors.
While today is just one day, it makes little sense to this analyst, from a fundamental point of view, that the most "commoditised" portion of the chip sector would see gains, if the grim reaper was ready to harvest some heads in the semiconductors.
Market Snapshot / Internals - 01/27/04 Close
The major indices reached their most bullish levels of the session at 10:15 AM EST, which was just after the Conference Board released its January Consumer Confidence Index reading, which jumped to 96.8 from December's 91.3 reading, but was still shy of economists' forecast of 99.0. While the major indices did try and firm late in the session, a brief attempt at a rebound into the 03:00 hour stopped dead in its tracks as the bond market closed.
One observation I made was in the Dow Industrials (INDU) 10,609.92 -0.9% as it approached its WEEKLY R1 of 10,655.77 after what looked to be a successful test of support at 10,613.48, where yesterday afternoon's rally really took hold.
Dow Industrials (INDU) Chart - 5-minute intervals
I couldn't have capture the highs of the afternoon any better than if I really tried as this screen capture, taken at 02:35 PM EST saw the INDU dilly dally just below the WEEKLY R1 (thick red) after it kissed our MONTHLY 19.1% retracement of 10,652.33. The "Pow!" was where the INDU broke an intra-day level of resistance, that eventually saw the INDU close at new 52-week highs. With the INDU closing at 10,609.92 -0.86%, the bulk of yesterday's gains have vanished.
But lets quickly take a look at the Semiconductor Index (SOX.X), where I wanted to show this index with WEEKLY and MONTHLY Pivot retracement, which I think can become a test and give us some "spatial" observation as to WEEKLY and MONTHLY pivot levels in respect to the other major indices.
Semiconductor Index (SOX.X) - Daily Intervals
I wanted to quickly look at the SOX.X chart with WEEKLY MONTHLY Pivot levels. Many NASDAQ-100 Tracking Stock (AMEX:QQQ) $37.74 - 2.2% traders like to keep a close eye on the SOX, and see the SOX as a leading indicator/sector for the Q's. At times, the QQQ itself will lead a SOX advance/decline and is why index trading can be much more complex that individual stock trading as there are so many interrelationships taking place.
It becomes rather evident that SOX 540 is a rather important level of resistance right now, where 521 and 528 become near-term measures for any strength. You will see some obvious ties with the SOX's WEEKLY S1 514 and overlap of its WEEKLY 80.9% retracement of 514.24, as with the yellow "zone of support" from WEEKLY S2 and MONTHLY Pivot 504.21.
In the Oscillators (MACD and Stochs) I've tried to envision a potential SOX support at 514 as Stochs reach "oversold." However, for Stochastics, I'm more skeptical of their reliability in a trending market (the regression channel is still bullish). MACD currently ties in better with a very bullish index taking a rest, where support lies at 500-504.
NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals
The similarity I see right now with the SOX.X and the QQQ is marked by the yellow "zone of support." While the grim reaper may be coming for the SOX near-term I'd be monitoring the SOX for support from 500-504, in correlation with the QQQ at approximately $37.36.
I' not sure we can always associate a 4.14% decline in the SOX with a 2.2% decline in the QQQ. I do think the pivot matrix levels do give some levels where we can measure strength/weakness from as it relates to the SOX/QQQ relationship. The simple moving averages are of no real help.
I totally agree with QQQ traders that the semiconductors strength/weakness play an important role in how the QQQ trades, and if a QQQ bull is to look for bullish pullback entry in the $37.36-$37.53 area, I would think it best that the SOX be holding at or above the 500-504 zone.
One good "tell" for a bull entry would be if the QQQ were just sitting in the $37.36-$37.53 area, while the SOX.X were moving higher above 521 or 528 as if a bull's hoof were being applied to the gas pedal. Right now it's not.
S&P 500 Index (SPX.X) Chart - Daily Intervals
I've pointed to a spot on the SPX's chart dating back to early January and 4-days of trade, as what we saw yesterday (SPX closing new high) then quickly reversing from the opening bell the following day.
There are some similarities in the SPX chart as the SOX, but not as striking as found with the SOX/QQQ. The one "suspicious" trade I noted today was that the BIX.X session high was 355.38, which was 0.01 shy of MONTHLY R2. While the BIX.X has been extremely strong, as it might relate to SPX MONTHLY R2 and BIX.X MONTHLY R2, then the BIX.X came just shy of "confirming" some of the strength seen yesterday in the SPX when it saw trade further above its MONTHLY R2. SPX and OEX traders have appreciated how the financials have lent to SPX/OEX strength and while I wouldn't consider today's trade in the banks as "weak," their stopping just shy of MONTHLY R2 may hint that some of the recent merger- related news in the sector is being digested.
Pivot Analysis Matrix -
I spent quite a bit of time on the SOX tonight and am running late with tonight's wrap. The "key" levels where I'd have an upside and downside alert set would be at OEX Pivot and OEX R1 for weakness and strength. I should have "dashed red" the SPX MONTHLY R2 and DAILY R1 as this 1,152 level was traded through today and would be deemed a tentative level of resistance for tomorrow, but a resistance level to be monitoring should the major indices attempt a rally into tomorrow afternoon's FOMC announcement.
A final note. I listed all of the SOX components tonight. I didn't do this to just show what a "whacking" some of them took. I (Jeff Bailey) don't know if this is the beginning of the end for the semiconductors. I do know this though.
If institutions are still firmly convinced of a longer-term bull market intact and some have been sitting on the sidelines the past couple of months, some of the SOX components, like a NVLS that got creamed, may suddenly be deemed "attractive" as this is now a valuation level that makes sense, relative to the longer- term outlook. Let's keep an eye on some of these stocks and follow their progress. Those that have been hit hardest might firm, while those that may still have some profits to be taken out of them move lower in coming sessions. Still, it is difficult to say that NVLS and ALTR's guidance isn't simply based on their own products not measuring up to the competitions.