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CUP WITH HANDLE


A Cup-With-Handle For Intel

09/27/07 09:39:21 AM
by Arthur Hill

Intel formed a bullish continuation pattern over the last two to three months, and a breakout would signal a continuation of the long-term uptrend.

Security:   INTC
Position:   Accumulate

On the daily chart (Figure 1), the stock surged in June–July and then pulled back with the rest of the market from mid-July to mid-August. Intel (INTC) bottomed with a spike low in mid-August and rallied back to its July high. These two highs established resistance at 26.5 and the stock again pulled back in early September. This pullback was much shallower and formed the handle. Another run to resistance completed the handle and a break above 26.5 would confirm the pattern.

FIGURE 1: INTC, DAILY. The stock surged in June and July and then pulled back with the rest of the market from mid-July to mid-August.
Graphic provided by: MetaStock.
 
The cup-with-handle is a bullish continuation pattern. This means it forms in uptrends and marks a continuation of this trend. The distance from rim resistance to bowl support is added to the breakout for an upside target. I estimate this distance around three points and a breakout at 26.5 would target further strength to around 29–30. Volume is important and I would also look for expanding volume to confirm any breakout.

Figure 2 shows the long-term trend with weekly bars. The stock bottomed in mid-2006 and has been rising the last 15 months. The blue trendlines show the Raff regression channel. The middle line is a linear regression and the outside lines are parallel. I extended the upper trendline to estimate an upside target and it points to around 30.

FIGURE 2: INTC, WEEKLY. The stock bottomed in mid-2006 and has been rising the last 15 months.
Graphic provided by: MetaStock.
 
There is also resistance around 29–30 from the May 2004 and July 2005 highs. The stock failed at this level twice in the last three years, and this area is likely to provide a little resistance on any breakout. Moving back to the cup-with-handle pattern, a break below the handle low would negate the setup and we could then expect a support test around 23.



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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