A key chip-sector tracker has entered a neutral zone — and until it breaks out, investors should view any of its moves, even violent ones, as just noise.
The zone in question for the PHLX Semiconductor Index is bookended by two important battlegrounds: one covering a six-month era of strength that ended in October, and the other marking a two-month period that ended in early April in which sellers had control.
The SOX index tumbled 12.2% in one day last week, then soared 11.3% over the next two days. On Tuesday, it whipsawed between a gain of as much 1.6% and a loss of 2.6%, before closing down 0.4% at 9,998.33.
But all of that volatility did nothing to change the outlook on the charts. Basically, unless the SOX reaches the extremes of the neutral zone, investors would be better off just sitting on their hands — or risk getting duped into buying near the high, or suckered into selling near the low.
The likely high would be the area between about 10,500 and 11,000, which marks the bottom of what BTIG technical analyst Jonathan Krinsky called “six months of overhead supply.” Any purchases made during that time “are now firmly underwater,” he said, which makes the area “unlikely to be overcome anytime soon.”
And the potential bottom would be around 8,000 to 8,500, which was the top of the resistance zone that ended with the breakout rally in early April.
The rally the took the SOX from the breakout to the “overhead supply” zone was rapid enough to see relatively low levels of activity — at least not enough to leave a lasting memory. And that’s likely the reason for all the volatility in the neutral zone.
Photo: FactSet, MarketWatch
Some people scoff at trading strategies derived from numbers on a chart, but charts are just visual representations of market activity. It’s not so much technical, but rather analysis of investor behavior at certain levels. Craig Johnson, chief market technician at Piper Sandler, said it’s about fear and greed, because there’s real money involved in those numbers.
“They are mental lines in the sand, where people have made actual gains and losses,” Johnson said in phone interview with MarketWatch. “That’s why they matter.”
The reason an area which was once strong resistance morphs into support when revisited, and why prior support becomes resistance, is because people who are losing money after selling and buying at those respective levels are more likely to do the opposite if given the chance. In turn, those who made money buying and selling at the same respective levels would likely try it again.
One can apply this type of behavioral analysis to a chart of Nvidia’s stock following its latest selloff.
The summer pullback in the stock had stopped at the top of the spring trading range. After that support broke in the past week, the next so-called line in the sand is marked by lows seen in September 2025 and March 2026. But the next potential key support zone would be $142 to $152, which was the top of the July 2024 to June 2025 congestion area.
Photo: FactSet, MarketWatch
Keep in mind the upper resistance zone and lower support zone aren’t necessarily meant to mark a long-term top or bottom, but they could provide what people on Wall Street refer to as “tradable” tops and bottoms. That means they are temporary, or that they lead to moves that are big enough to make it worthwhile for traders to risk selling or buying.
Rather than pick an exact point in the upper and lower zones to sell or buy, many on Wall Street prefer to “leg into a position,” which is the strategy of entering a position in small pieces at a time, at different prices, rather than placing one big sell or buy order at a specific price.
Comments