SOX Index rebounds from key Fibonacci target: Is a rally toward $13,500 next?

In our previous assessment of the Philadelphia Semiconductor Index (SOX), we preferred to look for higher prices but concluded that “The bounce scenario requires the index to hold above last week’s low [$11,960] as well, because a break below that price level targets, ideally, approximately $10,500-600 before the Bulls can try again. …. Thus, we have two plausible scenarios looking for higher prices, and we have clear warning levels (i.e., stop-loss levels) to indicate that our thesis/position was wrong.”

Fast-forward to today, and the index bottomed out at $10,445 yesterday. Thus, while our preferred paths for higher prices were wrong, the index did bottom right at the lower end of the target zone, having given us ample warning when it broke below ~$12K. As such, we are now, once again, looking for higher prices. See Figure 1 below.

Figure 1. The SOX index with intermediate-term Elliott Wave Principle count and several technical indicators

Namely, the price action since the June all-time high (ATH) counts best as a leading diagonal (green) W-a. Diagonals comprise five waves, each subdividing into three waves. In this case, the gray W-i, ii, iii, iv, and W-v form an abc-abc-abc-abc-abc pattern. In addition, the 3rd and 5th waves (gray W-iii and W-v) bottomed almost exactly at the ideal Fibonacci extensions: 1.62 and 2.00, respectively, adding weight to our Elliott Wave Principle (EWP) count.

Once the diagonals are complete, we can expect a retracement back to the start of the pattern, often considered to be at either the bottom of the 1st or the top of the 2nd wave, approximately $12,800-$14,300. In addition, B-waves typically retrace 50-76.4% of the prior decline, targeting $12,550-13,660. Thus, we have strong confluence in the $13,500 +/-1000 region before the next leg lower should announces itself.