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HEAD & SHOULDERS


Intel Traces Out Two Bearish Patterns

08/16/07 09:13:42 AM
by Arthur Hill

Intel is trading at support with two potentially bearish patterns emerging and money flows weakening.

Security:   INTC
Position:   Hold

Intel (INTC) led the market higher from mid-March to mid-July and then suddenly peaked with a gap down. The mid-July gap occurred after a 52-week high and this gap remains unfilled. As such, I would consider it a breakaway gap bearish as long as it remains unfilled.

FIGURE 1: INTEL, DAILY. The pattern emerging over the last two months looks like a head & shoulders formation with neckline support at 23.2.
Graphic provided by: MetaStock.
 
The stock found support just above 23 and bounced over the last two weeks. Support in this area stems from the March trendline, the June low, and the 50-day moving average (Figure 1). The pattern emerging over the last two months looks like a head & shoulders formation with neckline support at 23.2. A break below this level would confirm the pattern and target further weakness toward the next support level around 21.25. This would be around an 8.5% decline.

In addition to the head & shoulders, the stock also shows a rising flag over the last two weeks. This pattern is basically the right shoulder and represents an oversold bounce after the sharp decline. A move below 23.5 would confirm the pattern. The bottom indicator on Figure 2 is the Chaikin money flow and it turned negative over the last three days. Even while the flag rose, accumulation was weak and this favors a breakdown.

FIGURE 2: INTEL, DAILY. The Chaikin money flow turned negative over last three days.
Graphic provided by: MetaStock.
 
It ain't broken until it's broken. While the head & shoulders and the rising flag are potentially bearish, they need confirmation to actually be bearish. Neckline support is still holding and the flag low has yet to be broken. I would still favor the bulls until at least a flag break at 23.5. After that, I would change my bias and expect further weakness.



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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