Intel Cannot Keep Up

09/12/05 09:19:00 AM

by Arthur Hill

A support break and poor relative strength plague Intel and point to lower prices ahead.

Security: INTC
Position: Sell

The semiconductor HOLDRS (SMH) broke resistance last week and NASDAQ has been strong since August 29. Intel (INTC), however, does not appear to be impressed and sank to its lowest close since May 13. The INTC/SMH price relative (gray) peaked in late May and the (INTC/NASDAQ) price relative (black) peaked in early July. Both price relatives have been declining, and this shows that INTC is underperforming NASDAQ and the semiconductor HOLDRS. It is not a good sign when a key component like INTC underperforms.

On the price chart (Figure 1), Intel sports an island reversal and support break just below 26. The stock shot higher in July, gapped up on July 19, and then gapped down on July 20. With gaps on either side, all the buyers from July 19 have been stranded on the island with losses.

FIGURE 1: INTC

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The stock continued down after the gap and broke below the late June low. Downside volume has outpaced upside volume and the stock fell sharply on Friday with the highest volume since the mid-July gap. In addition, note that INTC failed to hold the September 6th gap. All in all, it is a clear picture of selling pressure outpacing buying pressure.

Where does Intel go from here? It is possible that there is a falling price channel extending down from July and the stock is on its way toward the lower channel trendline (~23) by the end of the month. One thing is for sure, the trendline extending down from mid-July sets the bearish tone. It would take a move above this trendline and last week's high (26.12) to reverse the decline and call for a trend change.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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