Trade of the Day: Fade Intel Corporation Stock for a Trade

Don't fight the trend in INTC, but play for mean reversion

Shares of semiconductor stocks have been off to another great start in 2018. Although momentum through a multimonth/quarter lens continues to be on the side of the bulls in this group of stocks, there are increasingly signs that a near-term pause may be overdue. INTC stock in particular is of interest to me for a mean-reversion move lower.

Before looking at the charts, note that while I see a pause for Intel Corporation (NASDAQ:INTC) in the cards, I don’t want to fight any major trends for longer than a trade.

In other words, this trading idea today is just a trade and not a call to make a meaningful longer-standing bet against the stock.

Intel Stock Charts

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

The multiyear weekly chart shows that the rally that INTC stock began out of the ashes in 2009 led to an overshooting move (past the black diagonal line) over the past couple of weeks. Momentum on the weekly time frame and as measured by the MACD momentum oscillator at the bottom of the chart recently also reached overbought readings last seen in 2014.

So you know, back in 2014 these overbought readings led to a 15% pullback in the stock. That is certainly not guaranteed at this juncture, but it is noteworthy in my eye.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

If we dig a little deeper into the near-term time frames we see that over the past couple of trading days, INTC stock developed what I refer to as a ‘bearish reversal’ as per my proprietary B2 Reversal indicator. Such junctures in the market visibly show buyer exhaustion, followed by selling pressure.

On Jan. 29 and 30., INTC stock had such a bearish reversal, which led to a 17% pullback from peak to trough. On March 13, the bulls once again became overly giddy to bid the stock higher, only to give up all of those intraday gains by day’s end. This was  followed by selling pressure to the tune of 1.89% on March 15, i.e. what I refer to as “follow-through” selling.

From here active investors could make a bet that this  bearish reversal has more power behind it and pushes the stock down into the high $40s (say the $47-$48 area) as a next downside target.

The great thing about this high probability setup is the well-defined worst case stop loss, which in this case comes in just around $53.80.

Check out Anthony Mirhaydari’s Daily Market Outlook for March 16.

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