SOX dipped to 11867 today, which is a critical low from 06/09 and 07/07.
I will give it 1-2 days to reclaim the 50d EMA. Otherwise, I have to stop out any non-Mag7 positions.
My thoughts are that semis should remain in a consolidation range instead of any directional breakout before the Mag7 ER, as bulls and bears are debating AI capex and ROI heavily with some balance.
Any breakout of the range before the Mag7 ER means the market has reached some weird consensus for reasons we don’t know, and we should be very cautious.
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The market's character is still one of a bear market or cyclical correction; strong open, fade into close and major average living below the 200-day line. Before a reliable bottom can be established, we need to see better price and volume action, including better action from breakout names forming bases.
We are clearly NOT out of the woods yet. The market backdrop is one where sentiment has improved with rising pessimism, but not a full capitulation. The VIX has reached bear warning levels, but remains below true washout extremes. A volatility washout is not required for a bottom, but would add conviction.
Bullish Scenario
--The war ends
--Oil prices recede
--Stagflation concerns ease
--Central banks continuing their easing trajectory
Under this scenario, we would expect:
-A broadening market advance
-Emergence of new leadership from sound bases
-A Follow-Through Day (FTD) on the NYSE and/or NASDAQ confirming institutional buying with little in the way of immediate distribution
-Significant drop in volatility
Bearish Scenario
--The war persists or escalates
--The Strait of Hormuz remains disrupted
--Oil prices make new highs
--Stagflation becomes evident in hard economic data
This would likely result in:
-Limited general market rally attempts with most breakout stocks failing
-Lack of follow-through from breakout names
-Further deterioration in breadth and leadership
-Dearth of setups in buyable position
-Continued elevated volatility and distribution
In that case, sentiment would likely need to reach higher levels of pessimism before a durable market bottom could form. In its absence, and end to the factors that are pressuring the market could cause the market to bottom in less dramatic fashion.