US stocks were highly volatile yesterday, but selling pressure gave way to a strong rally, with the S&P 500 recording its biggest one-day gain since late 2022, closing up 2.30%. According to the financial newsletter Sevens report, the rise was driven by easing fears of a recession and the stability of the currency and derivatives markets.
For the third consecutive session, stocks opened higher, largely due to a sense of relative calm in both the yen and {{44336|, two key factors that previously contributed to last week’s volatility spike. While economic data has been scarce overseas, the U.S. saw an important release with weekly jobless claims, which have recently risen and raised recession fears.
However, yesterday’s jobless claims figures fell from the previous week and came in well below expectations, which “sparked a reaction of ‘good news is good news’ as evidence of tight labor market contradicts the idea that the economy is already in recession,” the Sevens Report noted.
Semiconductor stocks, one of the main drivers of the current bull market, have also come under pressure amid the recent decline.
The Philadelphia Semiconductor Index (SOX) fell 27 percent from July highs to Monday’s lows before trying to stabilize earlier this week.
According to SEVENS, the Philadelphia Semiconductor Index {{40034| is under close scrutiny because semiconductors often lead the market. Given the current high level of market uncertainty, with the yield curve inverted, recession warnings, and the broader stock market approaching record highs, investors and analysts are debating the next step for semiconductors.
As the Sevens report made clear in its note, SOX remains in a near-term decline within a long-term uptrend.
Read also:Wells Fargo warns investors against investing in stocks. And she advises fishing only!
This week, this week has been testing three crucial technical levels around 4,275, including year-to-date lows, the 200-day moving average, and an uptrend line returning to October 2022 lows, which particularly crosses October 2023 lows.
The Sevens report notes that ‘digging deeper into the technical indicators, we find that the S&P 500’s relative strength uptrend line dating back to October 2022 was breached last Friday’.
“This suggests that semiconductor stocks may have lost their leadership role here, but that doesn’t necessarily mean the long-term bull market is over,” the report added.
The daily RSI is negative but not yet oversold, suggesting that there is still room for further declines, while the weekly RSI turn negative suggests that sellers are dominating the market.
“Given all these technical developments, the outlook for SOX depends on the time horizon and what the semiconductors will do in the coming weeks,” the report adds.
For SOX bulls, the main signal to gain confidence in adding or starting speculative long positions will be a breakout above the sharp downtrend line from current record levels, as Sevins notes. However, those buying dips should be ‘ready to ‘jump off the ship’ if the SOX fails to hit all-time highs.
For the Bear camp, 4,275 has become a crucial support level in the medium to long term. A break below this level could signal multi-month lows, a more significant drop below the 200-day moving average, and a breakout of the uptrend established in late 2023. Such a breach could trigger a downside target at 2,645, effectively erasing the gains made in 2023 and 2024.
What stock should you buy in your next trade?
The computing forces of artificial intelligence are changing the stock market. ProPicks from Investing.com are 6 winning stock portfolios chosen by our advanced AI. In 2024 alone, ProPicks’ AI identified two stocks that jumped more than 150%, 4 more that jumped more than 30%, and another 3 stocks that jumped more than 25%. What is the next jumping arrow
