Semis in Focus

This week has been a reminder of how much I dislike Q2 earnings season in the midst of the summer doldrums. The meme stonkx are an obvious exception and they kept things frothy, but they have slowed their roll the last few days. At least it explains a few things, like why Russell 2000 is nowhere near to keeping up with my most shorted index.

The S&P 500’s daily price range, measured in basis points, is very, very tight.

Instead, price is two days into the breakout and all we have to show for it is a 0.75% gain. I’m not saying that the price action we have is in trouble, it’s just severely lacking in conviction.

Of course we do have to consider sub-par 3C charts, $45k resistance right there, and Q2 earnings season in the midst of summer doldrums.

DIA (3m) The chart strongly suggests low conviction. I wouldn’t make bolder claims just yet. So, the question lingers: What about the Dow and 45,000?

DJIA (daily) – This isn’t the first time the Dow has consolidated bullishly just below 45,000—it’s déjà vu from earlier in 2025. This level is glaringly obvious. Given it’s the third attempt, and reflecting on my early market days when market makers and hedge funds toyed with such clear levels, even if this $45k fails again, I wouldn’t be shocked to see price break above 45,000, triggering a flood of orders. It’s almost too predictable.

The averages posted gains between +0.9% and +1.45% on the week.

On the earnings front, today’s reports (while not as consequential as yesterday’s) were generally positive, strengthening  optimism ahead of next week’s mega-cap earnings reports.

NDX vs. SOX – Yet the SOX Index topped last July (2024).

Last Friday I talked about the 4 stages of a price trend: Stage 1 Accumulation/Base; Stage 2 Mark-Up/Rally; Stage 3 Distribution/Top; Stage 4 Decline. Those stages hold true for primary trends that last years, and they hold true for Intermediate, Sub-Intermediate and Short-Term cycles within a primary trend.

The choppy, volatile price action, moving sideways in Q3 and failing to gain traction, resembles a Stage 3 topping pattern.

SOX (weekly) -I consider the rally from the April market low an Intermediate Trend. This week, Semiconductors posted the first bearish Engulfing candle of this trend. I’m not predicting a Stage 4 decline next week, but with heavy earnings, the FOMC meeting, and the critical Payrolls report aligning with month-end and tariffs, I see next week as pivotal for many assets. Funds will be making moves at month end, too.

As mentioned above, when price moves, it’s fairly easy work for me. Measured moves are common when there’s some price momentum. The stages tend to play out like a cycle over and over. Here’s how I see SOX Intermediate trend on a daily chart…

SMH (5m) – There’s super strong 3C confirmation of the rally off April’s base. It starts to turn the week that funds chased tech stocks at the end of June (window dressing) in green. That’s was also a “sell the news” response to the U.S. China trade deal, or framework.

• Stage 4 Decline –The 2022 bear market hit tech stocks hard, making them some of the worst-performing and most disliked assets.
• Stage 1 Base – Significant accumulation in tech stocks emerged by late 2022, signaled by strong 3C positive divergences, especially during December’s tax-loss selling in mega-caps, despite their unpopularity. This formed the base.
• Stage 2 Mark-Up/Rally – Starting January 2023, a massive rotation into mega-cap and tech stocks drove the first leg up (first green arrow), with tech leading the market.
  • Summer of 2023 a mid-sized head-and-shoulders top formed in all of the averages, leading to a three-month S&P 500 correction from 4,600 to 4,103.78, hitting our measured target of $4100. (3 month correction on the chart).
  • Immediately after hitting SPX $4100 a huge short-covering rally began around October 30, 2023. This is the second leg up (second green arrow) fueled by an AI frenzy, propelling the SOX Index to a record high of 5,600 by July 2024 (second green arrow).
• Stage 3 Distribution/Top – July 2024 marked a sharp tech sell-off (tech wreck), forming the head of a head-and-shoulders top in SOX, with the index dropping from 5,900 to 4,300 (neckline). The neckline broke in 2025,  the SOX sold off and came close to the measured downside target of 3,100, hitting a low of 3,388.62—a 40%+ decline from its high.

SOX (daily) –What do we have here? A larger top forming? A new, large base?  Honestly, I don’t know, but I think it’s one of the more important areas to watch and get answers.

3C has been mostly in-line with price. It signaled strong accumulation (white arrow) leading price into the second leg up, driven by intense AI hype and expectations of seven rate cuts in 2024. At the July 2024 record high (yellow), 3C detected weaker money flow, marking the “Head” of a head-and-shoulders (H&S) pattern. While price alone showed only a pullback from a new high, I called the H&S early due to weak price/volume action—rising prices on falling volume and selling on rising volume, a key H&S indicator. By the left shoulder (orange arrow), 3C showed further deterioration. Now, with price 4.4% below the July 2024 high, 3C is forming a lower high and recently turned downward.

I do think there’s a decent probability that  we’ll get some answers the next week. That’s why I wanted to get you up to speed. Even if you have no interest in trading/investing in them, they’re almost certainly going to be a key bellwether.

The Dow and Small Caps have some key questions to answer, too.  In Small Caps case it may just come down to whether or not Retail traders are still up for chasing Meme stocks.

Volatility…

But, showed relative strength into the end of the week.

The trend of relative strength is still intact. It’s like fertile soil waiting for a seed to drop and sprout into an actionable signal.

SPX/VIX (1m) – This is an example of what I’ve been on the lookout for. The seed that drops onto already fertile ground (VVIX’s relative strength), except we need more of it… a trend.

Dollar Index (15m) – especially above this trend line or $98.

This is R2K futures and the Dollar Index inverted. As the Dollar gained some this week, it put pressure on stocks – the effect is far more pronounced on Small Caps, but if the Dollar does see a sharp rise, I would expect it to hit in other places like the S&P.

(daily) But, it did the job.

(1m) –  I think another test is a reasonably high probability. Watch the volume. We want to see heavier buying at the trend line.

BTC (30m) –  Still a symmetrical triangle. It’s possible this could turn into a bull flag

Ethereum (30m) is earlier in the process of consolidating, but looks like it wants to be an Ascending triangle, which I prefer. They tend to be more bullish. I still prefer ETH over BTC, partly price action, mostly volume.

We have a lot coming up next week, including the end of the month which tends to see rotation and trend changes in assets. Quarter end is stronger, but month-end is up there, too.

It’s a big week for earning with 37% of the SPX reporting, including META + MSFT (Wed night) and AAPL + AMZN (Thurs night). We also get a healthy dose of macro with the FOMC on Wednesday and Payrolls on Friday. Additionally the 8/1 trade deal deadline also looms on Friday with Trump planning to send 200 letters to various countries between now and then.

Have a fantastic weekend!