Inside Markets — SOX Reversal

Downbeat consumer surveys and recent market moves have led to increased recession fears. Tomorrow’s University of Michigan consumer survey is unlikely to deviate much from last month’s print with a stark partisan divide partially degrading its signal quality. Monday’s Retail Sales report is a more important catalyst for markets with a downside print generating increased recession concerns. Ultimately, we expect the strength of household and corporate balance sheets will be enough to push US GDP growth back above-trend once tariff headlines fade and trade tensions ease.

The 5560 level for the SPX is the 52-week Volume Weighted Average Price (VWAP) for the SPDR S&P 500 ETF (SPY). Over the last 25 years, that average has tended to be a bullish/bearish transition zone for the SPX. In the past, sustained closing levels below the 52-week VWAP have led to higher volatility and bearish trends. It’s not an exact level, but closing above 5560 is preferred. There are two other technical support levels in this range with the 61.8% Fibonacci retracement sitting at 5520 and the November-February pattern objective at ~5500. Our guess is that the index stabilizes in this range. A sustained close below ~5500 would open the door to another 3%-7% downside in our view.

On Tuesday, the Philadelphia Semi Index (SOX) triggered momentum divergence buy signals from deeply oversold levels followed by technical reversals in AI-levered names (NVDA, AVGO, MRVL). DeepSeek-induced downside in the SOX on January 27 triggered the momentum unwind that preceded the broad market correction. Since January 27, the momentum factor has declined -14.3%, which falls in the middle of the historical range (10%-17%) for these events. Semis are a cyclical industry in the modern economy and tend to be an early mover. At this point, a technical reversal in the SOX would be an encouraging development for Tech and the broader market.