On the final trading day of 2024, the Philadelphia Semiconductor Index (SOX) experienced its 50-day moving average crossing below the 200-day moving average, marking the 17th “death cross” (DC) event since 1994. This technical pattern is historically associated with near-term bearish trends, as evidenced by backtesting results.
Over the past 30 years, backtesting shows that following a DC signal, the SOX index has generally recorded negative average returns during the first three months. While the intensity of declines tends to moderate after approximately 80 trading days, data reveals that in 16 of the past 17 instances, the decline percentage (D%) exceeded 70% within the first month. On average, the SOX index declined by approximately 5.2% following a DC signal, peaking at 75% within the first month (Exhibit 1). These statistics strongly suggest potential near-term weakness in the SOX index.
Furthermore, the SOX index is currently trading within a symmetric triangle pattern and is approaching the apex, signaling an imminent breakout (Exhibit 2). Given the bearish bias implied by the DC signal, a breakdown below the triangle’s support levels is more likely, potentially leading to further downside.
It is worth noting that the semiconductor sector has been a major driver of the ongoing U.S. stock market bull run. Persistent weakness in the SOX index could undermine the upward momentum of this leading sector with broader implications for market sentiment.
Exhibit 1:
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Exhibit 2: SOX Index Poised for Breakout from Symmetric Triangle
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