Tuesday, February 22, 2011

INTC Watch

Intel Corp. (INTC) crossed into price-channel bull phase on Friday, suggesting that the world's largest micro-processor maker may be poised to break out of a sideways trend that has held sway since late October, and a falling wedge (a bullish pattern) that has been under construction since the fall of 2002.

Despite a downward gap at today's open, the more volatile analytical tools say that INTC is on the upswing, for the near term at least.

phase pfeppstrend

INTC by most measures ought to be a growth stock. It has a high return on equity exceeding 25%, and no debt to speak of, with a debt/equity ratio of 0.04. It's the kind of stock that will cause traders who swear by the financials to swoon and fall in love.

Yet, the stock has basically gone nowhere for nearly a decade. It's last really days were the tech bubble of the Bill Clinton era. (Pause here for a moment of nostalgic remembrance of the good old days.)

Part of it might be the 3.3% dividend tends to dampen volatility. In part, it might be the fact than INTC lives in an industry of boom or bust: Both sales and earnings per share rose six years over the past decade, but fell in four. It could be that return on equity has been in growth stock territory (above 20%) in only two of the past 10 years.

Whatever the cause, INTC in many ways must count as a wounded bird -- beautiful but flawed.

Friday's high brought the price above the prior swing high set last Dec. 9. The next level of resistance dates back to last July. So there is a lot of congestion to the upside, as is to be expected with the stock that's tracing a very, very long-running wedge.

Reversal Levels
  • $22.28, +1.9% (july 2010 swing high)
  • $22.21, +1.6% (friday's swing high)
  • $22.07, +0.9% (dec. swing high)
  • $21.87 --- You are here.
  • $21.67, -0.9% (20-day moving average)
  • $21.32, -2.5% (50-day moving average)
  • $21.03, -3.8% (jan. 31 swing low)

The falling wedge is measured from a high of $36.78 set in January 2002, with subsequent swing highs in December 2003, December 2007 and April 2010. The upper trendline is presently at about $23.40

On the price-channel chart, INTC is presently under the two-day rule, meaning a close today and Wednesday below the $22.21 breakout level would move the stock back into neutral phase. The stock is presently trading well below breakout level.

One caution with INTC is the average directional index (adx) line, which is quite low, at 11. Although it was rising upon breakout on Friday, it has today turned sideways. Neither the level nor the direction bode well for INTC as a viable price-channel trade.

symbdayblevelstopadx ≥40?2-day?
INTC feb18 $22.07 $21.69   x

INTC has been in neutral phase since last June, using the polarized fractal efficiency line and Person's Proprietary Signal on the monthly chart. The chart presently points toward a rise to bull phase, although that could be some time away given the distance the pfe must traverse.

Monthly chart
phase pfeppstrend

Bottom line: I like INTC very much in theory but not so much in practice. Good return on equity and low debt, a decent dividend -- gotta love it. Inconsistent earnings and sales growth -- not so much. And the charts set little alarm bells ringing in the trading lobe of my brain.

So I won't be opening a position yet. I want to see if INTC survives the price-channel two-day rule, and then moves back above the breakout level, before I will consider committing funds.

Table Abbreviations:
  • pfe - Location of the polarized fractal efficiency line.
  • pps - Person's Proprietary Signal mode.
  • trend - Trend of the polarized fractal efficiency line.

Key to the PPS/PFE tables
phase bull phase
bear phase
pfe +100 and above
+50 to below 100
0 to below +50
below 0 to above -50
-50 to above -100
below -100
pps bull confirmation
bear confirmation
trend uptrend
no trend

More on the PFE/PPS analysis

Read a detailed explanation of the analytical tools and how they’re used, including trading rules.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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