Intel's Symmetrical Triangle

08/22/08 09:10:51 AM

by Alan R. Northam

Intel has been in a symmetrical triangle trading pattern for approximately six years, and the downward trend is expected to resume in early 2009 with a price target of $12.06 by 2010.

Security: INTC
Position: N/A

Figure 1 is of the weekly bar chart for Intel Corp. (INTC). This chart shows that Intel made a market top in mid-2000 along with the technology bubble that year. From the market top, Intel traded downward for two years before finding support at $12.06 per share in late 2002. Since then, Intel has been printing out a large symmetrical triangle that has taken more than six years to form. Symmetrical triangles are completed when the market starts to move outside the area of the triangle and are typically continuation patterns that signal the continuation of the previous trend. Since the previous trend is the period between 2000 and 2002, the triangle is signaling the continuation of the downward trend once the price closes outside the triangle.

FIGURE 1: INTC, WEEKLY. This figure shows the long-term symmetrical triangle formation and the expected time frame that the downtrend is expected to resume. This figure also shows the price target of $12.06 per share for the expected move down starting early next year.

Graphic provided by: StockCharts.com.

Symmetrical triangle patterns are made up of five waves labeled A, B, C, D, and E on the chart, with wave E yet to be completed. Each of these waves are composed of three subwaves. I have not included the labeling of the subwaves for waves A, B, C, and D, but have for wave E. Wave E has completed subwaves a and b, with subwave c partially completed. Typically, subwaves a and c are typically the same length but not always. In addition, the length of time for subwave c to complete is typically the same length in time for subwave a, but again this is not always the case. If we assume that subwave c will be the same length in time as subwave a, and the length of subwave c is the same as subwave a, then wave E should be complete when it hits the upper resistance line of the symmetrical triangle formation in early 2009.

The market that forms the symmetrical triangle typically will break out of the triangle pattern somewhere between two-thirds and three-quarters of the distance from its beginning to its apex. I have added two time lines to the chart to illustrate when Intel is expected to break out of the triangle pattern. The first timeline I added divides the triangle into three sections with vertical black lines, and I have labeled these with black numbers. The second timeline, in gray, divides the triangle into four sections and are labeled with gray numbers. The time period that Intel should break out of this triangle pattern is highlighted in yellow. As can be seen from the chart, the timeline analysis and the abc subwave analysis of wave E overlap. When multiple analyses overlap it is called clustering, and clustering indicates a high-probability area for the analyzed event to occur. In our case, it is the breakout of the symmetrical triangle pattern.

I have also included on the chart a downward sloping blue dotted line drawn from the expected ending price level for wave E. The slope of this line is the same as the slope of the downward trendline drawn off the market top in 2000. This dotted line then gives us an estimate for the rate of descent for this market once it starts to resume its selloff. The typical price target for a market that breaks out of its symmetrical triangle is the price minimum of the triangle. Therefore, I have also added a support line at $12.06. From the chart, we can see that the downward sloping blue dotted line intersects this support line at the end of 2009 to early 2010.

In conclusion, Intel is in a downward trend and has been consolidating its downward move for more than six years, resulting in forming a symmetrical triangle pattern. After six years of consolidation, Intel is now on the brink of entering into a time frame when markets typically break out of their triangle formations. Intel should break out of its symmetrical triangle formation in early 2009 and resume its selloff. Confirmation that the selloff has resumed will come once Intel breaks down out of the symmetrical triangle pattern. Once the breakout has occurred, we can expect Intel to continue to sell off throughout 2009 and should hit an expected price target of $12.06 per share at the support line drawn off the price minimum at the beginning of the triangle formation.

Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.