Intel INTC Earnings Breakout: True or Trap?

Jul 15, 2010: 11:59 AM CST

Though Intel INTC recently released much better than expected earnings, the stock fell from the initial enthusiastic price burst.

The stock broke a very important trendline in a breakout formation, but is it a true breakout that will lead to higher prices… or a vicious bull trap?

Let’s see the chart and the price levels that will give us the clues to the answer.

Like the S&P 500, Intel peaked in April and sold off in similar fashion to bottom at the critical support at the $19.00 per share level.

From there, price rallied upwards within the context of the descending trading range (see boundaries) and then broke out in advance of earnings, leaped to $22.00 on the earnings, and now has returned to test $21.

Without going too deep into the chart structure, what you need to watch is how buyers react at the $21.00 per share level.  If they step up and buy shares in a “throwback” to the breakout level, then all will be well with the future of the stock, at least from a classic technical analysis (charting) standpoint.

However, any push by sellers to take price under the confluence support – from the 20 and 50 day EMAs along with the upper trendline – at the $20.50 per share level would almost certainly lead to a further collapse to the $19.00 level and frustrate the bulls/buyers who purchased shares, thinking price broke out of the range – thus, locking in a bull trap.

So, bulls want to see price bounce off $21.00 and NOT go under $20.50 (there are likely a lot of stop-losses under $20.50).

Let’s pull back the perspective to see the weekly chart structure:

The main idea from this chart is that price remains within the context of a longer-term uptrend, but the uptrend is at a major crossroads right here.

The $19.00 level again comes into play as the “Last Line of Defense” of the Bulls, and a solid move under $19.00 would officially turn the primary trend in INTC to down.

Unless that happens, then price officially remains within an uptrend… or consolidating sideways trend that began around August 2009 (depending on your definitions).

Price has broken the declining trendline – a bullish breakout sign – so for now the breakout remains the dominant structure… but again, any move back under the trendline at the $20.00 level (also the 50 week EMA) labels the breakout as “False” and a “Bull Trap.”

Watch $20.50 for an initial big warning sign, and a move under $19.00 as a confirmed reversal.

Other than that, bulls expect the breakout to hold, but at these levels, they would prefer to see a move above $22.00 to be safe in their assumptions and positions.

Corey Rosenbloom, CMT
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