Semiconductor Index Rally Faces Elliott Wave Resistance as Next Pullback Targets Emerge

Downside and Upside Targets Reached = Sharp Up- and Downward Reaction

In our June 9 update on the semiconductor index (SOX), we found, using the Elliott Wave Principle (EWP), that

“With the red Wave-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”

Fast-forward to today: the index bottomed at $11,794 on June 9 and peaked at $14,655 on June 22. See Figure 1 below. Thus, the series of updates we’ve presented for the SOX using forward returns and the EWP since late April remains on track.

Figure 1. Daily chart of the SOX with our intermediate-term Elliott Wave Count

Although the correction hit the numbers, it was too brief to count as an intermediate-degree 4th wave (red W-iv), so we have updated the wave count by one degree. As such, the June 22 high is now labeled red W-iii, and red W-iv is now underway, ideally targeting $10,870 – $11,765. Nothing to worry about. It is essentially just nomenclature, aka “potato vs. potato,” but we do want to remain informative and objective.

Calculating the Downside Target Zones

Zooming in, we can count five waves lower from the June 22 red W-iii high for the gray wave-a/i. See Figure 2 below. A three-legged bounce (orange W-a, b, c) is now underway, with a common c=a target at the $14,472 gap. From around that level, ideally, we expect the next leg lower, W-iii/c, to commence to ~$12,000-12,900 depending on the relationship between W-c/iii and W-a/i (c/iii = 1.618x a/i or c/iii = a/i), which we simply cannot know beforehand.

Figure 2. 65-min chart of the SOX with our short-term Elliott Wave Count

We don’t yet know exactly how this bounce will unfold, so a drop below today’s low without reaching that upper level would mean the gray W-b/ii ended prematurely. Note that all the blue boxes are target zones we previously forecast for our premium members in our daily newsletters, and 6 out of 8 were reached, underscoring the reliability of the EWP in anticipating and projecting market moves, i.e., market moves in predictable patterns. Thus, we expect the gray target zone for W-c/iii to be reached as well, since the gray W-b/ii target zone has now been reached.