SOX RALLY FADES -- BROKERAGE INDEX TESTING 200-DAY AVERAGE -- S&P 500 MEETING RESISTANCE AT 200-DAY AVERAGE --
SOX RALLY FADES... Despite a strong opening in Intel, the bounce in the Semiconductor (SOX) Index hasn't been very impressive. In fact, it's currently down for the day. Chart 1 puts the SOX in some perspective. The good news is that it's bouncing off potential chart support at its January low (near 380) and its 9-day RSI line is bouncing from oversold territory under 30. But that's about it for the good news. The daily MACD lines are still negative. The solid blue lines surrounding the price bars are Bollinger bands. They're plotted two standard deviations above and below the 20-day moving average (the dotted line). There's potential support at the lower band. To turn even its short-term trend higher, however, the SOX would need to close over its 20-day line. It's not even close to doing so. Chart 2 shows the Semiconductor Holders (SMH) experiencing a modest price bounce on lighter volume. That's not very impressive considering that two of its biggest holdings -- Texas Instruments and Intel -- had strong earnings reports over the last two days. Chart 2 also shows that the SMH is well below its major moving average lines. One of our readers asked if the bounce in Intel and the SOX had changed my negative outlook in the technology sector. Not based on anything I've seen so far.
Chart 1
Chart 2
BROKERS TEST 200-DAY LINE... I've written before about the relative weakness in financial stocks -- and banks in particular. Today the brokers are on the critical list. Chart 2 shows the AMEX Broker/Dealer Index (XBD) trading at the lowest level in nearly six months and -- more importantly -- testing its 200-day moving average. Its relative strength line (under the chart) is also trading at a new 2005 low. I point this out for two reasons. One is that the group itself is at a critical chart juncture. The other is that brokerage stocks are often considered to be leading indicators for the rest of the market. That makes the test of their 200-day moving average an important test for the market as well.
Chart 3
S&P 500 MEETING RESISTANCE AT 200-DAY LINE... Earlier in the week I wrote about the likelihood that any short-term bounce in the S&P 500 would meet initial resistance at its 200-day moving average. It's doing that today. Chart 3 shows the S&P backing off from the (red) 200-day line at 1154. The low volume on this week's modest rebound doesn't inspire confidence in the market's ability to rally much further. For those waiting to do some selling on the bounce (or buying a bear fund on a pullback), I wouldn't get too fancy trying to perfect the timing. Just do it.
Chart 4
