SOX Philadelphia Semiconductor Sector Index

The SOX Philadelphia Semiconductor Sector Index, which we track closely, has formed a highly symmetrical triangle formation.   I believe that this will be a chart to watch for the next weeks.  If SOX action in March results in a breakout through the resistance line, I would consider that bullish for the rest of 2007 for chip stocks.  The chart will be revisited later when a breakout pattern formation from the triangle is established. 

While doing analysis and comparisons of SOX performance versus the other major stock indexes, I noticed that SOX appears to be starting to outperform the other indices.  Again, it is early to tell for sure but the initial indication supports that view.  I have provided charts which show the SOX index divided by the indices of various popular averages.  The dotted blue line shows a period when SOX is outperforming the other index.  The dotted green line shows the reverse, i.e., when SOX is underpeforming the other index.  Note the recent breakout above the green line in the charts.

SOX/SP500 Trend

SOX/DJI Trend

SOX/Nasdaq Trend

As depicted in the chart below, SOX made a sideways back-and-forth move in a 15 to 20 point band around the 470 level since October 2006.  With the current market weakness, I believe that the SOX will test the 450 level.  If broken, the next critical level to watch is 390.  

Short-term SOX Resistance/Support Levels