Semiconductor Index Outlook: Upside Target Reached, Correction Underway

Upside Target Reached = Sharp Downward Reaction

In our May 26 update on the semiconductor index (SOX), we found, using the Elliott Wave Principle (EWP), that

“Based on Fibonacci relationships between 1st, 3rd, and 5^th waves, we expect the smaller, green 5^th Wave (W-5) to reach $13,400-14,000. Thus, the larger (red) W-iii is rapidly approaching its end, as its 5^th wave (green W-5) is underway. Once reached, the odds of a retrace (red W-iv) to about $9,600 increase significantly.”

Fast-forward to today: the index peaked at $13,998 on June 3 and has since fallen 15.9% in just four days, now trading around $11,900, erasing two weeks of gains in four days. See Figure 1 below. Thus, the updates we’ve presented for the SOX using forward returns and for the EWP since late April have all been on track.

Figure 1. Daily chart of the SOX with short-term Elliott Wave Count (linear scale)

Calculating the Downside Target

The EWP count remains in line with the index’s price action, having peaked on June 3 at $13,998, right at the top of the ideal target zone for the red 3^rd wave; W-iii. Now the red 4th Wave (W-iv) is underway, subdividing into three smaller (green) waves. Unless this 4th wave becomes more complex, which can’t be foreseen, the index should now be in the green W-c, after topping today within the ideal green W-b target zone.

Zooming out, we see that the blue 161.8% extension mentioned in our previous update was reached. See Figure 2 below. With the red W-iii complete and exceeding the 161.80% level at $13,336 by 662p, we can now expect the red W-iv, which often targets the (blue) 100.0%, to stall ~662p north of it ($9,523 + $662 = $10,185), which aligns with the $10,390-11,490 target zone shown in Figure 1. After four comes five, so the red W-v, ideally to $15,000 +/- $1,000, is still pending.

Figure 2. Monthly chart of the SOX with long-term Elliott Wave Count (log-scale)