Fitz Bits: Intel's Downtrend Is Intact

Today we're look at some reader requests:

• Intel (INTC - commentary - Cramer's Take)
• Semiconductor HOLDRs (SMH - commentary - Cramer's Take) ETF
• Shaw Group (SGR - commentary - Cramer's Take)
• UltraShort Real Estate ProShares (SRS - commentary - Cramer's Take) ETF
• Home Depot (HD - commentary - Cramer's Take)

Each day, I'm featuring several reader requests for the current technical take on a stock. I can't assure you that I'll get to yours, but I will certainly make every attempt to do so, as long as the stock meets the following criteria.

1. The average daily trading volume needs to exceed 250,000 shares. If a stock trades too thinly, chart analysis doesn't help much, because there just are not that many traders involved. One big buy or sell order can move the stock in ways that chart analysis just cannot predict. So let's stay above 250,000 daily shares.

2. The stock really needs to be trading above $5. Sub-$5 stocks don't get the same treatment by institutions and portfolio managers. Also, many traders set their trading screens to ignore stocks below $5 just to cut down on their trading candidates. While I'm sure your favorite penny stock is the next undiscovered gem, I'm not in the business of breaking news stories ... so once your gem is discovered, let me know, and I'll take a look at the chart.

3. Make sure you check my recent "3 Stocks" videos. I don't want to be too redundant, so if I've recently covered a stock in video format, I won't repeat it here.

Hopefully, you've noticed that I alternate between daily and weekly bars in the charts. It's important to understand the underlying rationale for choosing one time frame over another. I differentiate between these time frames in pretty simple terms.

The longer time frame -- the weekly bar chart -- is my "decision" time frame. I want to remain in phase with the trend, and I use the weekly bar chart to identify the trend. So I'll feature a weekly chart when I want to emphasize a certain aspect of the prevailing trend -- not a specific buy or sell point. This weekly chart is the timeframe in which I make my decision: Do I want to buy or sell the stock?

The daily chart is my "action" time frame. Once a decision is made on the basis of the weekly time frame, then we zoom in on the daily chart to choose that level at which action is taken. The daily time frame is my preferred frame of reference for actually implementing the decisions I've made on the weekly chart.

In your own analysis, make sure you are using different time frames for different things, otherwise your actions will largely be a function of your emotions.

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Intel is caught in a nasty downtrend ... like just about every other ticker on the tape. The recent breakdown below prior support at $13 was bearish because it perpetuates the downtrend with a lower low. If you're long on INTC and hope, I'd consider selling on the next tag of the resistance trend line. After all, if the stock does turn around, you can always buy it back -- even if it's for more money.

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The Semiconductor HOLDRs has fallen to an all-time low. That's pretty ominous. With this ETF deeply oversold, it is ripe for an oversold bounce, but that's surely not something I'd try to get in front of. After all, stocks can become oversold and remain that way for a long time. I'd just stay away from the semis and let someone else try to catch this falling knife.

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Notice how far Shaw Group is below the 50-day moving average? The last time this stock fell to such depths was in late October. You can see what happened then -- an oversold bounce. If you're long SGR, I suggest waiting for the bounce. But if it doesn't come, you'd be better off preserving capital and taking the loss. There is nothing worse than buying a double bottom and then watching the second bottom ... fail to be a bottom!

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The UltraShort Real Estate ProShares inversely tracks the real estate sector (with leverage), so what's bad for real estate is good for SRS. Well, there is a lot of good stuff happening in SRS ... because there is a lot of bad stuff happening in real estate right now. I wouldn't be buying this now, because it's moved up too far, too fast. If the SRS keeps moving higher, just consider it a missed opportunity. But if it pulls back and starts firming up around $200, you might consider starting a position. But the better scenario would be a deeper pullback to the 50-day moving average. That way your risk is more clearly defined -- the 50-day moving average has consistently held up on prior pullbacks.

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In this weekly chart of Home Depot, you can see how it had been trading between $24 and $30, with one notable dip in late June. But over the past month or so, support has broken down; the better trade now is to sell HD on tests of prior support. So if HD manages to rally back up to $23 or $24, I'd be a seller. Assuming the stock does rally, by the time it reaches prior support it will also be close to the 200-day (40-week) moving average, which has been capping the stock for the past year.

Be careful out there.

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At the time of publication, Fitzpatrick had no positions in the stocks mentioned, though positions may change at any time.

Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback; click here to send him an email.