Shares of semiconductor stocks like Intel Corporation (NASDAQ:INTC) have risen sharply over the past month and a half. As a result, they’ve made one heckuva bullish statement across the past three to six months. This breakout has coincided with the S&P 500’s bull move to fresh all-time highs. Given the early cyclical nature of semiconductor stocks, this spells further upside for INTC stock.
When Intel reported its latest earnings on July 20, earnings beat expectations, but a top line of $13.53 billion came in light. Intel did keep an upbeat tone and said it expects to pick up momentum in the second half of 2016. That mostly kept INTC stock investors in their seats despite a negative near-term reaction.
Over my nearly 20-year stretch as a trader, I have come to respect cyclical analysis of markets. That includes understanding which stock sectors and industry groups tend to lead and lag out of economic slowdowns.
The semiconductor group is deemed an “early cyclical” group, so when I saw this group lead the S&P 500’s breakout in early July, I took notice.
INTC Stock Charts
Looking at the multiyear chart of Intel stock, we see that much like the S&P 500 itself, INTC began to show topping signs from late 2014 through the first half of 2015. This ultimately pushed Intel into a bigger consolidation phase, which now looks to be ending.
Note that by August 2015, INTC stock had fully retraced its second-half 2014 rally and moved back to the horizontal support line around the high $20s. Through a multi-year lens, this was an exceedingly constructive move as such a retest of previous multiyear resistance helped to shake out weak-hand investors and reset the chart for a next wave higher.
On the daily chart, we see that the entire big-picture consolidation process in Intel stock also shaped a so-called inverse head-and-shoulders pattern, which I marked with the three triangular blue-shaped shades. The horizontal neckline of this entire formation is where INTC has been consolidating below for weeks. The longer Intel can consolidate below this area, the more energy it will build up for a next leg higher.
Active investors and traders could look to get long INTC stock upon a break above $35.40, using a next upside target around the $40 mark.
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