On Wednesday, May 17, a broader risk-off wind blew through global risk assets, leading the broader U.S. equity indices to drop anywhere from 1.8% to 2.6% on the day. A segment of notable weakness was large-cap tech, including semiconductor stocks such as Intel Corporation (NASDAQ:INTC). INTC stock dropped about 2% on the day to slightly underperform the broader market.
More importantly, though: Intel snapped a technically crucial area of support and now looks to have enough momentum to tumble another 5% before it hits a well-defined area of support.
Over the past few weeks in this column, I have repeatedly voiced my concern for the low-volatility rise in large-cap tech stocks, as represented by the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ). While I believe in the growth story of these tech heavyweights, history has taught us that such low-vol environments usually end with a bang.
As such, INTC stock helped lead the tech sector lower on Wednesday, as the QQQ ETF erased the past 13 sessions of gains — all in one day — in an important mean-reversion move. Boom!
On the first chart below of the Market Vectors Semiconductor ETF (NYSEARCA:SMH), we see that while the broader trend is very well-defined and pointing higher, Wednesday’s move came as this market was trading at the very upper end of its range.
Thus, from this angle, there is no reason just yet for larger concern. But there’s plenty of room for more mean-reversion lower, and for these stocks to take a breather.
INTC Stock Charts
On the multiyear weekly chart, we see that the drop in Intel thus far this week has led it to break below the black multiyear support line, as well as well as the yellow 50-week simple moving average.
From this angle, I see plenty more downside for mean reversion. A next better area of horizontal support comes in closer to the $32-$33 area with the blue 100-week simple moving average.
On the daily chart, we see the same near-term bearish posturing. Note also that after Intel reported earnings on April 28, it proceeded to gap lower, which was the beginning of this most recent selloff.
From a Fibonacci perspective, the “correction” since the January highs so far stands at about a 25% retracement of the entire rally from the August 2016 lows into the January 2017 highs. A next Fibonacci support comes in at the 38.20% retracement, which also lines up with the aforementioned $33 area of support, which also lines up with horizontal support (marked by the blue box).
Barring any major bullish reversal in coming days, the path of least resistance for INTC stock seems to point toward the $32-$33 area.
Active investors and traders could consider shorting the stock or expressing near-term bearish views via the options market.
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