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VOLATILITY


Intel Returns To Dullsville

04/13/06 08:21:04 AM
by Arthur Hill

Contracting volatility in Intel should put traders on alert for a big move. But which way?

Security:   INTC
Position:   Hold

For the second time in the last 12 months, Intel (INTC) formed a tight falling price channel. The first occurred from July to October 2005, while the second started in late January 2006. Clues on the first breakout can tell us what to watch for the second time around.

FIGURE 1: INTEL. INTC held within this channel in mid-2005 over more than three months. Prices inched lower, but at such a slow pace that the Bollinger Band width remained fairly narrow.
Graphic provided by: MetaStock.
 
Let's look at the first channel and breakout in Figure 1. The stock held within the channel for more than three months. During this time frame, prices worked their way lower, but the decline was so slow that Bollinger Band width remained relatively narrow. A sharp move above the upper Bollinger Band signaled a sudden volatility expansion and breakout. For indicators, the Ultimate Oscillator (7,14,28) trended lower until late September and then formed a higher low in early October. The indicator actually broke above trendline resistance and the September high in mid-October. This preceded the stock's breakout by three weeks and provided an excellent early alert.

FIGURE 2: INTC. In the current falling price channel, the stock has been working its way lower once again for more than two months. A move above the upper channel would trigger a bull signal.
Graphic provided by: MetaStock.
 
Now let's apply that logic to the current falling price channel (Figure 2). The stock has been working its way lower for more than two months, and Bollinger Band width is extremely narrow. Volatility is contracting and neither bulls nor bears are making a move. The Ultimate Oscillator is also trending lower and shows that bears are still in control of momentum. As noted previously, the first thing I will look for is a breakout in this indicator. A move above the upper trendline and February high (50) would be quite positive. For the stock, a move above the upper channel trendline and upper Bollinger Band (20) would trigger a bull signal and open the door to a nice pop.



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.

Title: Editor
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Date: 04/13/06Rank: 4Comment: 
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