Intel Remains A Drag

03/21/07 10:28:11 AM

by Arthur Hill

Intel failed to bounce along with the NASDAQ over the last two weeks, and relative weakness points to even lower prices ahead.

Security: INTC
Position: Sell

On the daily chart (Figure 1), Intel (INTC) formed a big top from October to February and broke down at the end of February. The pattern looks like a head & shoulders of sorts with neckline support at 20. The breakdown occurred on high volume and the stock also moved below the 200-day moving average. The next big support level is around 17 from the June–July highs and this is the downside target.

FIGURE 1: INTEL, DAILY. INTC formed a top from October 2006 to February 2007 and then broke down at the end of February.

Graphic provided by: Telechart 2007.

The bottom chart window shows the price relative, which compares Intel to the Standard & Poor's 500. The price relative peaked in October and foreshadowed weakness in the stock. In addition, the price relative broke down a few days before the neckline support break in the stock (blue circles). The price relative moved to a new low this month, and Intel continues to lag the broader market. Intel is still a tech gorilla, and weakness also weighs on the semiconductor indexes and the NASDAQ.

FIGURE 2: INTEL, HOURLY. Examining the 60-minute chart may give clues as to whether there will be a bounce from oversold levels.

Graphic provided by: Telechart 2007.

The only potential positive is that the stock became oversold after a 15% decline from mid-January to early March. This means there could be a bounce from oversold levels, and I am turning to the 60-minute chart for clues (Figure 2). The decline slowed at the beginning of March as the stock traded relatively flat. This caused the moving average convergence/divergence (MACD), a momentum indicator, to gravitate back to the zero line. Even though it may look the part, I would not consider this a positive divergence. Downside momentum turned flat and MACD just moved back to zero. This shows less downside momentum, not actual upside momentum.

To turn this stock around and trigger an oversold bounce, both MACD and INTC need to break above their March highs. As long as these highs hold, the current consolidation reflects a rest after a decline and further weakness is expected.

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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