Semiconductors are where it’s at. The sector will remain one of the more important industry groups to watch in the coming days and through year-end.

Let’s start with a very short-term review of the Philadelphia Semiconductor Index (SOX). As weird as Fibonacci retracements may seem to the uninitiated, I’m always impressed how well they identify reversal levels often referred to as pivot points in technical discussions. Of course, they aren’t perfect; no single indicator is but very often a 50%-62% retracement of a prior move in an asset serves as a reversal level.

In just over a week, the SOX collapsed, down 13%, only to bounce up magically from 62% retracement of the June-July rebound, which conveniently corresponds to a broad band of support at the summer 2018 highs. By Monday’s close a bounce seemed likely supported by a variety of trading indicators, such as the relative strength index (bottom panel) along with the Put-Call, and VIX etc. reaching near-term oversold extremes.

The bottom line is the low established this week near 1411 on the SOX is now an important line in the sand for the bull-bear debate. If I am right that the broader market is establishing a low, then the SOX should not break this week’s lows. Given the destructive speed of the correcti...

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