Pay attention to the semiconductor stocks this week. The sector is on the verge of a BIG move.

And, since semiconductor stocks tend to lead the broad stock market, the direction of that move is going to be important.

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Coronavirus may be a serious health disaster… but it’s quickly becoming a financial disaster as well. There’s already $2.2 trillion in “stimulus.” And trillions more are on the way.

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Take a look at this chart of the Semiconductor Index (SOX)…

The action in SOX over the past few weeks has created a consolidating triangle pattern. That’s a series of lower highs and higher lows.

The index is approaching the apex of the triangle. So, we’re due for a breakout, one way or another, sometime within the next few days. And, that breakout should lead to a big move.

The height of the triangle, from its low at 1650 to its high at 1800, measures 150 points. So, if we get a rally and the semiconductor sector breaks out to the upside, this index could run as high as 1900.

On the other hand, a break to the downside could cause a drop down to 1600.

The bulls probably have a slight – very slight – edge here. Consolidating triangle patterns often break in the direction in which they were formed. Since SOX was rallying going into this pattern, the odds favor it rallying to come out of the pattern.

But, there’s certainly no guarantee. If the primary trend of the stock market has shifted from bullish to bearish, then we can’t really rely on patterns playing out the same way they have over the past 11 years.

The action in the semiconductor index was quite ugly on Friday. If that ugliness follows through this week, then the SOX is likely to break to the downside and lead the broad stock market lower.

Either way, traders should keep an eye on this chart this week, and respect a move in either direction. It will tell us where the broad stock market is headed next.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, Tim and Ross look forward to trading with Jeff’s guidance…

Hi, I just started following you and have subscribed to three of your services. I look forward to learning and following your recommendations. I’m 66 years old and have sold my hearing aid business, and am now managing my savings for a little less than two years.

I wish I would’ve done this long ago. I’m looking forward to working with you.

– Tim

Hi Jeff, a few days ago you mentioned Apple (AAPL) looked a little overbought, so I took a look and jumped in, then out, in three days for a 101% gain!

You also mentioned that XBI looked overbought. I’m in a put trade right now at a 65% gain, but trying to hold out for 100%. With the current market conditions, I think it should come close to there. Thanks again!

– Ross

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].

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