Is This, The Extreme?
Previous top and reversal analysis of the SOXX, and its chief cook and bottle washer, Nvidia, have been premature.
Analysis, correct for a while, only to be negated by more upward action.
So, we have to ask ourselves;
‘Do we feel lucky?’ 🙂
Actually, luck does not have much to do with it; let’s go to the action itself.
First, the long-term view of largest cap, Nvidia.
Nvidia NVDA, Quarterly
We can clearly see Prechter’s ‘Rule of alternation’ at work.
Complex, simple, complex and so on.
Note the massive upward spike in Thrust Energy (middle panel).
We’re less than a month away from completing the 2nd Quarter. It looks like thrust energy is, or will be, diverging (not advice, not a recommendation).
Moving on to the SOXX.
Semiconductors, SOXX, Weekly
Recently, the week of April 19th, there was a significant downard thrust.
A similar thrust (blue arrows) resulted in a decline lasting ten months, dropping approximately -45.35%.
However, in the case above, the reversal has yet to materialize … or has it?
Last week posted outside-down, but did not close outside-down.
It leaves the probability open for upward action.
However, from a risk standpoint, it’s The Danger Point®.
If we use last week’s high, SOXX 243.63, as a hard stop, the cost of being wrong positioned short, is least (not advice, not a recommendation).
Stay Tuned
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Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
The Danger Point®, trade mark: No. 6,505,279
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Hi Paul! Hope you and yours are doing great! I am trying SOXS with a stop @ 24.33 (weekly low) at the open tomorrow. I don’t like the spread of options on the SOXX ticker and really don’t have a good enough understanding of them. I really appreciate ALL the hard work you do and thanks again for the posts man!! Richie
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Thanks Richie,
Here’s an extra hint, if you have not thought of it already.
That is, if Friday’s action was short-covering into the close, then we can expect that covering to be complete or near complete. If it was ‘covering’, the probability of a lower open for Monday (on SOXX) is high.
However, if it’s a higher open, that does not necessarily mean we’re on to higher highs in SOXX, but it does mean a swift decline (favoring options) may not be the highest probability.
I’ve noticed, as you have, the wide spreads on the SOXX Puts. The Calls on SOXS are much more narrow, but then there’s the negative decay on the vehicle; always present on 3X leveraged inverse funds.
Lastly, trading options: If I do trade them, which is not often, I use Elder’s approach. Meaning, I’ll trade the shortest dated option available. Sometimes, I’ll execute a day trade on the day of expiration.
However, doing that (day trading the option) needs to have a bullet-proof internet connection as well as a broker that stays available all through the market hours … something I have found in recent years to not be a guarantee.
Well, all for now.
Best regards to you,
Paul
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