Friday, August 8, 2008

SOX Provides Bright Spot

On Tuesday the low put/call ratio and the reaction to the Fed suggested a pullback was likely to occur soon. Wednesday the volume pattern made the same suggestion. Thursday the market dropped hard. The S&P and Dow both lost almost 2%. The Nasdaq just under 1%. There’s no telling whether this drop will continue over the next few days, but for the bulls there is a silver lining in today's action: Semiconductors.

Today the semiconductor index (SOX) bucked the trend and rose over 1.5%. When semiconductors take on a leadership role, it’s normally a good thing for the market. I decided to look at times following other days where the SOX managed to rise over 1.5% while the Nasdaq dropped .75%:


Not only are the % wins and average trade columns notable here but the massive volatility as well. Look at the size of the average wins and losses when you go out 4-6 weeks. Even over the next two weeks they’re huge. If you’re bullish, the stats are compelling. If your unsure, then a volatility play might be something to consider.

1 comment:

Anonymous said...

Rob,,
With so many indexes setting at the 50 or 200dma decision point,
have you ever ran studies that cover this type of situation, where the data looks bullish only stop points could well crash everything? Torn..

Mac