Despite the recent strength in the Technology sector, the pattern leading back to the top of the channel looked suspicious to me all along. The selling seen during the last two days literally undid two week's worth of constructive action. As depicted in chart 1 below, the yellow zigzag (wave B), which retraced ~88.6% of wave A, must have set the stage for wave C. The pattern that has formed over the last few months sports a Head and Shoulders look, albeit the pattern remains unconfirmed. 'Target setting' is often an exercise in futility. Hence, until something new materializes to negate this view, we shall remain bearishly inclined.
Chart 1. Nasdaq 100 ($NDX) ... The right shoulder of a suspected Head and Shoulders top unfolded as a zigzag (in yellow).
Philly Semiconductor Index ($SOX)
As for the $SOX index, a 5-wave rally (in yellow) appears to have completed just below the 61.8% retracement level. Within the larger-degree blue wave progression, we must assume wave 4 is now underway. Should this analysis prove accurate, the next buying opportunity in the coming weeks/months should open the door to a breathtaking 400-500 point rally.
Chart 2. Philly Semiconductor Index ($SOX) ... Wave 4 should now be underway. The ensuing wave 5 should target 1230.
Dow Jones Industrials ($INDU) and Transports ($TRAN)
The rally in the Industrials ($INDU), and especially in the Transports ($TRAN), is not in the least surprising. But per chart 3 below, The $INDU has now tagged the top of the Andrews Pitchfork channel on the back of last month's TD Sequential Sell 13 countdown; hence, it is due for some sort of correction. Moreover, TD Sequential Sell countdown bar #13 (weekly timeframe) will be registered at today's close, as depicted in chart 4.
Chart 3. Dow Jones Industrial Average ($INDU) ... Corrective action is now due on the back of last month's TD Sequential Sell 13 countdown.
Chart 4. Dow Jones Industrial Average ($INDU) ... TD Sequential Sell countdown bar #13 is due at today's close.
As for the Transports ($TRAN) in chart 5, I wouldn't be surprised to see more short-term upside. But should a corrective phase be seen in the coming weeks/months, The $TRAN should offer a window of opportunity as lucrative as the $SOX's.
Chart 5. Dow Jones Transportation Average ($TRAN) ... Back near yellow point X. Should some corrective action take place in the coming weeks, a lucrative buying opportunity will present itself.
Peter Ghostine (@peterghostine)
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