|Looking at the INTC chart in Figure 1 we see a 4-month head and shoulders pattern with pretty decent volume on its creation. Although it doesn't have what I refer to as perfect volume, it does look good. In addition, it also broke the third fan line 10 trading days ago in the $33.40 area on February 6, 2002. The neckline is in the $31.40 area and has now been broken with an increase in volume. On the downside this isn't a requisite but it's nice when it happens to give further indication of direction. After breaking the third fan line it had its typical pullback to the line in the $34.00 area. I say typical because this happens often.|
|If you were long on this equity and didn't sell on the downside break then this is the time to sell your long position. You should sell into the strength. Naturally, this suggestion is more for the short-term speculator. We will likely see another pullback to the neckline, which gives another opportunity for profit. The medium to long-term investors would probably not sell unless they expect a big downturn. Those interested in shorting the equity would take a position on this pullback. I'm expecting a down move to the $27.00 area but prognosticating how far these moves will be is a whole different art.|
|Figure 1: Daily chart for Intel (INTC).|
|Graphic provided by: SuperCharts.|
|On the SOX Index in Figure 2 we have a similar pattern as Intel. This isn't unusual since it is the 900-pound gorilla. It broke the third fan line on Wednesday February 20, 2002. We also had a breach on this fan line to give an early indication 8 days ago. There is a 4-month multiple head and shoulders pattern, which unfortunately has no volume for confirmation. I don't like using this index since it has no volume but I know many are interested. The neckline is in the 510 area and I'm expecting it to drop with Intel. At this time I'm expecting a drop into the 460 area.|
Figure 2: Daily chart for the Philadelphia Semiconductor Index (SOX).
I have given my best estimate on where they will hesitate but remember when shorting to get out on the hard drops. The chips are falling.
Click here for more information about our publications!