Month: June 2012

INTC, Intel update

Hamilton

INTC globe and MailIntc june 2012

The chart on the left is from the recent edition of the Globe and Mail. It is written by a team of highly respected technical analysts. Essentially they like the stock with a potential of $34 or $39 in the future. The only caveat is that the stock not drop below $24.50 on a sustained basis. The basis for this prediction is the market action over the past 5 years that displays lower highs and higher lows, a “wedge formation” according to the authors.

    What caught my attention is the totally arbitrary choice of time (probable dictated by the chart service used). To highlight that, I have shown that same 5 year period in a 25+ year Yahoo chart; it is in the black box. If taken out of context you can come to very different conclusions. As indeed I certainly did as in my last (and only) blog on Intel I concluded that the stock should drop from $27 to $17 and after that, even below $11. Here it is repeated;

INTC jan 2012

Obviously my criticism of taken time periods arbitrarily is highly unfair as I did so myself, even in a more pronounced way! So here is a new attempt at getting it right. I cannot speak to the “technical” analysis part as this website does not do that, it is strictly EW.

The drop starting with the bursting of the tech bubble in 2000 is wave A down. It is 5-waves! That alone implies that another 5-waves down should be forthcoming, even if a drop from $70+ to $15 is, in itself, a pretty nice bear move. The nine years or so from 2003 to just recently were spent doing the counter-trend A-B-C (much like the NASDAQ itself). The C part of that is what occurred the last 3 years. C waves are always 5-wave moves so my own analysis from earlier this year must be wrong! This can be overcome by assuming that the low occurred a little earlier which adds a first wave, and then adding a triangle for a 4th wave and a wedge to finish the whole structure (in black below);

INTC june 2012 s

The fact that the recent high failed to reach the level of the corresponding one back in2003/4 can be taken as being rather bearish. Equally bearish is the fact that despite trying for so long the stock was not able to retrace even a minimal 38% of its fall. Stay bearish but keep your eye on $24.50 (see also MSFT next).

Interest rates. Update.

Hamilton

interest rates 2012

This is the one year T-bill rate in the US, courtesy St. Louis Fed. In a previous blog (March 19, 2012) I had commented how, frequently, markets have a predilection for symmetry, perhaps it strokes our sense of aesthetics the right way, whatever.   In this chart I have endeavoured to “show” what symmetry would imply, and remember a picture is worth a thousand words.

  We know that interest rates hit a low immediately after WW2, I believe in 1947. This chart does not go back quite that far but it is easy to imagine where that point is. The two, thick purple lines are drawn vector equal but opposite in direction. What it tells us is that rates are about to reverse any time now, probable before this year is out. This is not that big an insight as you cannot really go below zero, not if you are running trillion dollar deficits year after year.

   What may not be that obvious is that market action near peaks or lows can become decidedly unnerving. During 1980 US rates went up and down by about 8% in a matter of months. Jimmy Carter was president and we had the Iranian hostage crises that occupied most of the news. There was talk about limiting the use of credit cards etc.etc. It was great for traders if you got it right (I did for the most part for my bank Conti. Ill.) but no fun if you did not. Carter did not get re-elected  and the hostages were released the day after Ronald Reagan became president.

In a previous blog (by the same name) I had assumed t to be 34 years, somewhere between 32 and 33 is probable more correct. 32 would take us to 2011 and 33 to 2013. In practical terms that is now.