SOX chart, and my positioning:
Although I am short the sector, I must admit, the SOX chart still looks bullish. Remember, last year the SOX spent 2 months below the 200dma, and the 50dma crossed below the 200dma, yet this didn't signal an end to the bull market.
A low RSI (below 40), has been a good entry point for semis, anytime in the last 2 years. Now at 32.
But...I am not buying yet (or covering my semi-equip and airline shorts), because:
The market hasn't yet appreciated the secondary effects on the global economy, of the destruction in Japan. How many components of how many products, are single-sourced from Japan, from factories that are damaged, or can't move goods on damaged roads and ports? And the risks in Japan haven't been quantified yet. It could get a lot worse. If multiple spent fuel pools dry up and burn in open air, and the wind is blowing towards Tokyo...
Message 27241716
As I've been saying for months (no matter what the market did), there are too many macro risks out there, that the market seems to be ignoring.
From April 2010 high to August low, the SOX dropped 24% (405 to 306), over a 4-month period. A 24% drop now, would bring us from 474 (recent high) to 360. The SOX at 360 would be modestly below its 200dma (at 382 today), and back down to end-2009 levels. I am (very tentatively) targeting that level, to begin covering shorts and going long. My strong inclination, is to watch and do nothing, for now.
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