Shorting the SOX to hedge index risk?

Continuing the series on identifying extremes, the attached “Weekly” chart show the price of Nasdaq Semiconductor Index (SOX) for the past 12 years.

My annotations highlight various times when the index is trading at ‘extreme’ percentage above its 200 day moving average.

If I don’t bang on about mean reversion, at least it shows that the probability of the index extending its move is limited.

This also makes the SOX a plausible security to short (much like the FAANGM stocks) if one is looking to hedge out index (excesses) risk.

October 28, 2020
by Rob Zdravevski
rob@karriasset.com.au

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