The Chart du Jour

Outside Day Down: Intel

March 15, 2000

Back on February 9th, we suggested that Intel would likely see 128 3/4 before the Nasdaq froth would abate. In Tuesday's trading we touched 125 5/8 before reversing dramatically lower in an "outside day down formation" (a pattern that we have seen much of in different indices and stocks recently). Perhaps Intel is "complete" to the topside, perhaps not. An unbiased examination of the daily chart below would probably suggest that in Elliott wave terms we just finished a Wave 3 of V, and not a 5 of V advance (even if that would be somewhat more satisfying). Such an interpretation would of course allow for a nasty correction now, with still marginal new highs later. A lasting collapse would still be in the offing down the road, but just a minor one for now.


Chart produced using Advanced GET End of Day

On the chart above we have sketched a possible 4th wave path, with a minimum objective toward 105 for the first leg down, and a possible descent all the way to 95 in the c wave of an anticipated a-b-c formation.

"But surely not Intel," the bull pundits will shout. Intel is supposed to be on the upswing, their 1-gig chip now in hand, Microsoft 2000 in the stores, and all well and happy in the "new economy" Silicon Valley.

Well, we are not fundamentalists at Sand Spring Advisors, but we do like to combine our technical thoughts within a fundamental context. From 1988 through 1996, Intel's average annual P/E ratio averaged around 13 while their sales growth was running closer to 35% per annum. By comparison, over the past three years, Intel's sales growth has plunged to just 5.4% and their operating earnings have barely budged. But now Intel's P/E stands north of 50. Are the various internet investments that Intel has been cashing out of over the last eighteen months (in part to disguise their earnings problems) deserving of such a lofty P/E ratio? We think not. It's just the left-over perception by neophyte American investors that Intel is forever a great monopolistic company -- even as AMD so clearly eats away at that very monopoly. For now, we'd look for a deep and choppy retracement down in Intel as complacent high tech investors take another warning shot across their bow.

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