Pulling back to the monthly chart on SMH and you start to see what's getting bulls excited. There are 4 clear consolidation wedges and we appear to be breaking out of one right now. It also appears to be the breakout of a cup and handle formation or the start of measured move upwards.
Despite all that I'm still near term bearish (see related posts). Take a look at that July 07 candle... I think there's a very good chance we end the month w/ something like that if earnings don't paint as rosy a picture as what all the speculative buying has inferred as not much has materially changed since the end of January. Also notice how the Dec low busted the wedge on the downside, which typically result in a bust and head fake going the opposite direction, just like in 2007. Overall market sentiment is just way too bullish right w/ AAII investor sentiment ticking above 40% bullish, typically portending a near term pullback.
In my other post I've highlighted a three drives pattern that's expected to complete early next week at the ATH. Were the pattern to complete it shows a price target of 96 and a move back down to the bottom of the consolidation wedge by next earnings season. However I think it's also possible that price rejects at the ATH, but successfully retests 105 which is around the top of the wedge and the 2000 high. I think at the very least we revisit this area due to significant near term bearish divergence present in many chip stocks and the aforementioned overbought conditions.
Having said all that, I'd be remiss if I ignored the bull case here. If SMH somehow manages to survive the earnings season unscathed, there are few bearish catalysts left to keep semis from making a parabolic move up to 150 given how tightly chips are tied to "trade news". Yes, there's huge bearish monthly divergence and no volume, but these same technical conditions were present during the Mar 13 and Jun 16 breakouts. Yes, it's a Ponzi scheme, but considering all technical trading, indicators, sentiment are derived from price action, one can argue that to ride the trend as a technical trader is the equivalent of participating in a Ponzi scheme.
I'm planning to start a near term short position at the ATH w/ an add at 117 and a price target of 105 where I may switch to a long position depending on just how bad earnings are. Even if you don't trade any names in this sector, it behooves one to pay attention to semis as a leading indicator in this market.
Despite all that I'm still near term bearish (see related posts). Take a look at that July 07 candle... I think there's a very good chance we end the month w/ something like that if earnings don't paint as rosy a picture as what all the speculative buying has inferred as not much has materially changed since the end of January. Also notice how the Dec low busted the wedge on the downside, which typically result in a bust and head fake going the opposite direction, just like in 2007. Overall market sentiment is just way too bullish right w/ AAII investor sentiment ticking above 40% bullish, typically portending a near term pullback.
In my other post I've highlighted a three drives pattern that's expected to complete early next week at the ATH. Were the pattern to complete it shows a price target of 96 and a move back down to the bottom of the consolidation wedge by next earnings season. However I think it's also possible that price rejects at the ATH, but successfully retests 105 which is around the top of the wedge and the 2000 high. I think at the very least we revisit this area due to significant near term bearish divergence present in many chip stocks and the aforementioned overbought conditions.
Having said all that, I'd be remiss if I ignored the bull case here. If SMH somehow manages to survive the earnings season unscathed, there are few bearish catalysts left to keep semis from making a parabolic move up to 150 given how tightly chips are tied to "trade news". Yes, there's huge bearish monthly divergence and no volume, but these same technical conditions were present during the Mar 13 and Jun 16 breakouts. Yes, it's a Ponzi scheme, but considering all technical trading, indicators, sentiment are derived from price action, one can argue that to ride the trend as a technical trader is the equivalent of participating in a Ponzi scheme.
I'm planning to start a near term short position at the ATH w/ an add at 117 and a price target of 105 where I may switch to a long position depending on just how bad earnings are. Even if you don't trade any names in this sector, it behooves one to pay attention to semis as a leading indicator in this market.
Yorum:
Hit the ATH EXACTLY in the same timeframe for the first drive. You can't draw a three drives pattern more perfectly than this. Let's see if the ATH rejects it here... My puts for May are filled.
