If you’re a believer in price action and the market speaking, a tough year for chip giant Intel (INTC) could get worse before conditions for bulls improve in Intel stock. Let me explain.
It’s been a rough and tumble 2016 for investors in a market where both value and growth plays have been fair game for lower prices. And nowhere is that more evident than the Intel stock price.
InvestorPlace’s Charles Sizemore recently wrote about Intel stock sporting a below-market multiple, above-market dividend payout and, at the same time, growth prospects in the cloud market, which Intel’s server chips enable.
The combination of factors does sound promising, but before you get out the shovel to scoop up shares, Intel did manage to disappoint back in mid-January and INTC paid the price.
Right or wrong, the stock did swoon by 9% following a top and bottom-line beat, as caution regarding a saturated chip market trumped the headline results.
And while the Nasdaq 100 and S&P 500 are both marginally higher from the report date, Intel stock is still floundering slightly lower and off by an above-market 15% year-to-date.
What’s more, the big picture for INTC suggests the market may not be done speaking or, more aptly, tormenting Intel’s value and growth seekers.
Intel Stock Weekly Chart
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Of concern and weighing on shares, Intel has put in a sizable head and shoulders from mid-2014 to mid-2015, acting as a formidable top in the stock.
More recently, a suspect V-shaped rally off the August flash crash produced a lower high relative to the head and shoulders pattern. That’s interpreted as bearish confirmation for a trend lower.
With Intel’s stock wedged between the former necklines and resting at the 2012 pivot high — any weakness in the stock could have the remaining bulls tossing in the towel and providing further bearish momentum.
Our initial downside objective would be the $25 to $26 area representing a test of the August low in Intel stock and an uptrend line dating back to the 2008 to 2009 financial crisis low.
INTC: Going for the Long Put
For like-minded traders that find the market’s bear case compelling, the INTC June $27 put is attractive.
Priced for 94 cents mid-market, the out-of-the-money June put more than doubles intrinsically on an expiration basis if the low end of our initial target objective of $25 is met in Intel stock.
Further, a test of $25 prior to expiration could allow for larger gains due to time premium priced in the put contract.
That premium, however, could come under pressure if implied volatility on INTC options declines. But given a fairly steep drop in overall market volatility this past week, it’s less of an immediate threat.
Bottom line, I’d set a money stop loss on the put at 50%. A stop should allow for enough directional and volatility wiggle room to participate in a bearish move, but also provide a more meaningful exit for Intel stock bears should the market begin to speak otherwise.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
