The U.S. stock market rallied on Monday to kick off a fresh week of trading. Technology stocks led the rally, as they collectively surged after pausing for a few days.
From where I sit, it is becoming increasingly difficult to chase higher something like the Nasdaq 100, which is why I am digging a little deeper to find recent underperformers that offer well-defined reward to risk.
One such name is Intel Corporation (NASDAQ:INTC), which so far this year is lower by more than 2% and thus notably diverging from the tech sector, as well as the semiconductor group of stocks to which it belongs.
To gain some perspective I crafted the above chart, where I pegged INTC stock versus the Market Vectors Semiconductor ETF (MUTF:SMH). Intel, with over 10%, currently is the second-largest holding of the SMH ETF.
This chart doesn’t need much explanation, as the most recent trend has been a well-defined one-way street lower for the past year and a half.
To be clear, this is simply a relative picture. In other words, this relative weakness on the part of INTC stock is not the result of the stock falling but rather the result of some of its peers such as Nvidia Corporation (NASDAQ:NVDA) showing massive relative outperformance.
Looking at the multiyear chart of INTC stock itself, we see that after the collapse from the year 2000, the stock settled into a long-term base-building phase that can be viewed as over time having carved out an inverse head-and-shoulders pattern as marked by the blue triangles. The break out of this pattern followed in the spring of 2014 but momentum could not sustain and ultimately a re-test of the black horizontal neckline occurred by the summer of 2015.
Since then the stock has managed to get back on its feet and, over the past nine months despite underperforming many of its peers, has been consolidating in a constructive manner.
Finally, on the daily chart note that as a result of the nine-month sideways range, the stock’s 50-, 100- and 200-day (yellow, blue and red respectively) moving averages are now all tightly bound together. Ultimately this will lead to better separation of these moving averages as the stock starts to break out of this range.
On Friday, INTC stock reached the lower end of its multimonth range, which also coincided with the multiyear diagonal support line. With the follow-through buying Monday, my B2 Reversal indicator flashed a buy signal with an initial upside target at $36.50 and possibly followed by the $37 area, using a last-resort stop loss at $35 on a daily closing basis.
Check out Anthony Mirhaydari’s Daily Market Outlook for June 20.
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