Semiconductor Action Troubling

Markets gapped lower this morning and broke through short term levels of support from the last week. So far it looks like a normal part of the corrective action after a strong rally but the emphasis should be in listening to the message in each of the issues we trade. The theoretical relationships don’t always play out the way they are commonly thought to and the action in the semiconductor issues over the last month emphasizes that point. Trade each stock based on its own merits.

click chart to enlarge

$SPY tested the rising 10 DMA (blue) and it is now below the 5 dma (red) which suggests caution until the market shows better statility.

$QQQ holds up impressively above the 70 level, a move below the morning low would likely lead to a test of hte prior peak near 69.50

$IWM has experienced a stronger rally than the other indices over the last 2 months and is now in a corrective mode as support was broken and there is a pattern of LH and LL over the last couple of days. The larger uptrend is still solid and there is no reason to think a top has been found here, but waiting for the current weakness to play out and then find stability makes sense before imitating new longs.

$SMH has been the weak sector over the last month and it continues to be. So far the weakness here has not spilled over to the broader market but it is still a reason for concern, especially now that the market is below the 50 DMA (that average is currently 32.44)

As always, each stock should be traded on its own merits, however when we have a weak day in general any long positions should be smaller than you would trade if all timeframes were aligned.