Shares of semiconductor giant Intel (NYSE:INTC) have fallen hard and in a straight line since mid April. INTC stock is now oversold and active investors and traders could look to buy it for a trade.
When I last discussed INTC stock on April 18 I offered that the stock is wildly overbought and due for a corrective move lower. Since then, the stock has fallen about 23% into what is now a critical area of technical support, as we will see on the charts below.
Stocks and indices have a tendency to mean-revert lower and higher. The best opportunities for so-called “mean-reversion” trades in my eye happen when a stock is overbought or oversold and thus the proverbial rubber band is stretched too far. Much like INTC was record overbought in April and thus provided us with an opportunity to play the stock to the short side for a mean-reversion trade, Intel stock is now record oversold and a mean-reversion trade to the upside is setting up.
INTC Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multi-year weekly chart we see that after INTC stock teased the unsuspecting traders with a breakout move, it quickly reverted lower in a straight line over the ensuing weeks.
This recent sharp decline in the stock now has it sitting in the mid $40s, which happens to be a major area of technical confluence support. This support area is made up of diagonal support (black diagonal line) as well as the lower end of the choppy sideways range that the stock has been in since early 2018. While Intel stock does not have to immediately rally back up from here, the odds of a further decline at the recent rate are very low.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that on its way lower over the past few weeks INTC stock sliced through its medium-term moving averages as if they weren’t there. This simply illustrates the severity of the selloff. But just like a good sprinter can’t keep up his velocity forever, a stock in free-fall ultimately begins to stall and/or bounce.
Looking at the stock’s MACD momentum oscillator at the bottom of the chart we see that it is severely oversold. In fact, on the daily chart INTC stock has never been this oversold from a MACD perspective. When I see a stock reach record momentum oversold readings I sit up and take notice.
Considering the aforementioned confluence support area in play here, I think traders could look to buy INTC stock in the $43 – $45 area for a bounce up into $49. Any daily close below $42 is a stop loss signal.
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