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The Semiconductor Index (SOX) is nearing the end of a five-wave downward pattern from January’s peak. A close above $4,200 would confirm this completion, with expectations of three upward waves following.
Since the all-time high in July 2024, three larger waves have formed: W-a, W-b, and nearing completion, W-c. The ideal target for W-c has been reached, yet the optimal target for W-v remains at $3,864-$4,040.
Potential Cycle Four Formation
The current situation suggests a Cycle-4 wave, possibly flattening out or forming a triangle. Corrections typically follow a 3-3-5 pattern, with potential recovery towards the high $5,000s, and a gap-fill target around $5,700.
An alternative count suggests a more modest rally towards $5,000 before a potential decline to the low $3,000s. The risk from current levels lies between $3,800 and $4,040, with the reward potentially reaching $5,000 to $5,700.
No assurances can be made regarding the accuracy of this analysis or its future profitability. All trading decisions are the sole responsibility of the reader.
We’re now observing the tail end of a five-leg drop from the January top in the Semiconductor Index. That fifth wave, which tends to finalise such sequences, appears to be on its last legs. A daily close above 4,200 would likely complete it, opening the door for the start of an upward three-part structure. That kind of move typically retraces a chunk of what was lost, often correcting between 38% and 61.8% of the prior fall.
These corrective patterns don’t tend to be sharp, single moves but more drawn-out affairs—think bumpier, more hesitant rallies made up of two smaller pullbacks and one stronger push. If the bounce behaves like that, it should be consistent with standard post-trending corrections. The bigger picture since July paints three major legs, labelled accordingly. The first pullback began the process, the middle wave did its job bouncing price higher, and the final leg—a declining one—seems just about concluded.
Taking stock of where price stands now, we find ourselves in a zone that has already reached the ideal reversal level for that final leg. That said, there’s still space to push slightly lower before hitting optimum fulfilment, which sits between 3,864 and 4,040. So, while evidence points to this move bottoming out, the possibility of another small dip before the bounce shouldn’t be dismissed.
Long Term Trend Implications
In broader-count terms, this entire move could be part of a larger structure that’s correcting a longer-term climb. The form it’s taken hints at a sideways or contracting shape—nothing impulsive or overly sharp. That matters because it helps us interpret whether price is undergoing a deeper correction or whether it’s simply pausing before resuming the larger trend upward. Previous fourth waves at these scales often resemble flat corrections or symmetrical triangles. This one continues to fit that pattern.
There’s a clear price gap above that’s still unfilled. Historically, gaps of this sort tend to get revisited, making the 5,700 region a viable longer-term target—if momentum starts to build in favour of a bounce and if broader macro forces cooperate. Until then, the short-term reward sits in the 5,000–5,700 zone, depending on how strong that expected recovery unfolds.
An alternative view, while still corrective, doesn’t offer quite as strong a bounce. Under that configuration, price still rallies but only as far as the 5,000 area before turning lower again—possibly towards the lower 3,000s. In that outlook, this recent decline would be just the earlier phase of a broader A-B-C correction, with the C-wave resuming downward after a shallow retracement.
Where we currently sit on the chart places risk, on the downside, between 3,800 and 4,040. These levels are far enough below price that traders might look for signs of exhaustion or bearish rejection before acting defensively. At the same time, the prospect of a meaningful upward leg should not be overlooked, producing a reward range upwards of 5,000 and possibly 5,700 over the coming weeks.
From our perspective, the unfolding structure provides asymmetry. Those who time their entries carefully, especially in confirmation of a break north of 4,200, may find directional setups with measured risk and defined upside. Risk management remains paramount given that price remains near the lower bounds of this entire move, with volatility likely to persist.
We interpret these wave structures not as guarantees but as tools to frame probability. Current arrangements suggest the primary trend may be due for a corrective push upward, yet room exists for downside deviation in the short term. As always, the levels mentioned offer sharper context for when to act, rather than if.
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