Trend Check with Tushar Chande

Intel (INTC) Breaks Out (for Real)

Yes, Intel has broken out, for real this time.  After a couple of years of consolidation, and building a long base, Intel is launching upwards with confidence. Of course, Intel has lagged the SOXX index, to which it belongs, because the index has been rallying for well over a year.  But after reporting higher earnings and raising guidance, this breakout looks like it is for real. 

 

Chart 1: This breakout in Intel looks like it will last, with the CTM above 80 for about a month, and the company reporting higher earnings and raising future earnings guidance.

 


 

The Weekly Chart Tells the Story

Over the past few years, Intel has struggled to breakout.  A weekly chart of Intel (see Chart 2) summarizes the story.  The breakout in early summer 2014 led to a full retracement and re-test of the breakout level around 24 in late 2015.  Intel  next attempted a breakout in 2016, but it resulted in a long sideways consolidation between 33 and 37 instead.  In general terms, one could point to a cup-and-handle type formation, but the handle was higher and longer than usual.  Hence, the new breakout, coming off a prolonged basing period could have room to run.  The most recent earnings report and higher earnings guidance should bring in earnings momentum traders helping to sustain the breakout.  For what it is worth, analysts as a group are also bullish.

 

Chart 2: Intel has struggled to trend higher.  It came back down to retest the breakout at 24, forming a multi-year cup-like formation, and then the initial breakout above 33 led to a long lateral consolidation (or handle).  The most recent breakout has taken the Chande Trend Meter (CTM) above 90, a very strong reading on weekly data.

 

A Contrast: Water Utilities Breakout

In contrast to the weakness in long-term bonds, water utilities staged a breakout this month (See AWK in Chart 3).  In the past, strength in AWK has coincided with weakness in the broader market, so this breakout is worth tracking. As you can see below, in Chart 5, long-term bonds have weakened since September, even as AWK and $DJUSWU rose to new highs.  Thus, the expected decline in utilities (which tend to follow bonds) has not materialized for AWK (et al) and this makes it a noteworthy breakout.

 

Chart 3:  Water utility American Water Works has broken out to the upside, along with other water utilities (see below).

 

Chart 4: The entire water utilities group is breaking out, something worth tracking as a contra-indicator.

 

Chart 5: The long-term bond market ETF (BLV from Vanguard) has declined from September highs even as water utilities broke out to new highs (see Chart 3 and 4).  The BLV ETF has broken below my medium-term model, though a few more down days will be needed for the 10-day average to break below the lower band.

 

Market Summary

The market continues to trend higher, across all time frames and major indexes. Except for the short-term on the small cap index (which is flat), the market internals across all other time frames and capitalization levels are also pointing higher. 

Chart 6: At the capitalization-level, only small caps on the short-term time-frame are flat. All remaining levels are long, so the up-trend continues.  Even here, the CTM is still green, so the bullish trend remains entrenched.

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