Philadelphia Semiconductor Index likely to retreat after recent rally

The Philadelphia Semiconductor Index (SOX) experienced a significant decline following its recent surge, correcting 28% from a peak of 14,655 to a low of 10,445. However, the index rebounded over 14% in two weeks, testing the 12,000 level. This resurgence may be attributed to several factors. Major hyperscalers have reaffirmed and increased their guidance for AI capital expenditure, with Amazon raising its forecast from US$200 billion to US$220 billion and Alphabet elevating its range to US$195 billion to US$205 billion.

Accelerated demand for cloud infrastructure, custom AI chips, and new data center capacity also contributed to the revised capital expenditure forecasts, alleviating investor concerns about a slowdown in AI infrastructure spending. The technical analysis suggests that the SOX is likely to decline after reaching a key resistance level, as it retested the 30-day simple moving average at 12,000, previously serving as dynamic support.

Additionally, the index is near a 50% Fibonacci retracement level at 12,550 and has brought the Moving Average Convergence Divergence indicator close to resistance after a bounce off the zero line. Therefore, the recent rebound in the SOX could be temporary, with the retesting of the 12,000 to 12,600 range as the primary resistance for the index to correct.

The 11,700 level serves as crucial support, and a breakdown could trigger further weakness, potentially driving the index towards the 11,000 level.