These charts show why you cannot assume semiconductors will save the markets

Just this weekend I prepared and posted here a review of the big-picture chart of the semiconductor index ($SOX), in Semiconductors' recent strength may be like moth to a flame - with resistance at broken trendline (6/14/09); pointing out that it isn't necessarily in a bullish posture. I've grown a little concerned because I've seen some analysts asserting that semiconductors will lead the markets upward. Well ... maybe - but don't assume it! From a chart perspective, it looks like they can help lead the markets to new lows. On the big-picture monthly chart in my earlier post referenced above, I showed that it's at significant resistance from a broken trendline, and from an Elliott Wave perspective it can be counted as being only part of the way along a very large wave "C" down that will take it to new lows. Today, let's see how it is doing on the daily chart. First, we see that after having displayed bearish divergence, StochRSI is now documenting that the $SOX is weak, and might be oversold except that an upturn wouldn't be confirmed unless StochRSI turns up. Otherwise, it is definitely possible for StochRSI to remain in that low position for a long time during downtrending. Second, it displayed relative weakness today, dropping even though the broader markets perfomed somewhat better. Third, we see that it's doing a heavy test of its 50-day moving average. Fourth, although that 50 dma recently did a supposed "golden cross" upward from the 200 dma, that 200 dma is still declining. It remains possible for both the semiconductor index and then the 50 dma to cross back below the 200 dma.

The slow-moving DMI-ADX indicator in the bottom window of the chart is a very big clue that this index is not uptrending. During an uptrend, the green positive DMI line will be above 20 or 25 and preferably above 30, and the black ADX line will move up to similar levels. The black ADX line never did follow along with that on the rally, and the green DMI line has dipped with the possibility of a cross-under of the red (negative) DMI line that can move up again. The other indicators are telling the same story - the rally has ended for now, and there is no guarantee that there's enough momentum in this index to avoid new lows. The entire rally can be counted as an "abc" in Elliott Wave terms as a completed bear-market rally. There is no Elliott Wave count that I can see that gives any guarantee that this index will consolidate and move higher once again - that much is safe to say.

Of course I cannot guarantee that the semiconductor makes its next movement to new lows. But I'm definitely leaning to the interpretation that it will, based on the big-picture chart position; so that's my current position and point of view. If my interpretation is wrong, then we'll certainly know because it will get support either from its 50 dma or its 200 dma (again)! If I'm right, then it will move under both support levels, with a very good chance of finally rolling over to new lows.