Inside Markets — NDX/SOX Support Levels

Last week, we called your attention to the NDX and Philadelphia Semiconductor Index (SOX) breaking intermediate-term technical support levels. This is the second time these indices have broken support since the current rally began in November. The other break preceded the April spike in bond yields, which ended when 10-year yields failed to break above levels from mid-November. The late-April recovery in the NDX and SOX was a relatively easy call given a clear loss of downside momentum in 10-year bond prices near 4.50%. But markets are no longer in a ‘bad news is good’ phase like they were in April, which makes defining a near-term bottom more challenging. In our opinion, bad news on the economy will be bad for equity markets going forward with crowded positioning in the NDX and SOX acting as an accelerant. Highly concentrated markets are more vulnerable to come undone once they break support, and while both indices have reached short-term oversold levels, the intermediate-term technical break deserves more consideration in our view. Near-term technical support for the NDX is now ~18415 (~2% below current levels) and near-term technical support for the SOX is ~4850 (~1.70% below). A break below those levels would put the respective 200-day moving averages ( ~17650 and ~4550) where breakdowns often trigger CTA selling.

Implied equity volatility remains at relatively low levels with the VIX Index now at 17.28. VIX levels north of 20 become a headwind for rally attempts, while spikes above ~30 usually take months to unwind. Sustained levels above ~22 would be a problem in our opinion.