The fallout in Intel (NASDAQ:INTC) after its disappointing earnings report was swift and dramatic. In just five trading sessions, the Street lopped 21% off Intel stock’s market cap. With the haircut, Intel stock has returned to the depths of the March meltdown.
Perhaps the descent wouldn’t be so bad if it took place while the broader market was struggling. If technology were getting whacked, then Intel’s pain would be easier to excuse. We’d view it as a symptom of a widespread ailment inflicting an entire sector. In such a scenario, its relative performance wouldn’t be bad at all.
We’re not living in such a world, however. While Intel stock has fallen into a gaping hole, the rest of its sector is flying to the moon. The issues striking the company are idiosyncratic. Bulls would argue it’s the biggest reason why INTC belongs on the “do not touch” list.
There are many better-performing semiconductors these days that it’s hard to justify dumpster diving for a few shares of Intel. Have you seen Advanced Micro Devices (NASDAQ:AMD) or Nvidia (NASDAQ:NVDA) lately? Or how about Taiwan Semiconductor (NYSE:TSM)? The lot of them are beaming beauties, complete with powerful uptrends that continue to notch new records.
Still, there’s no denying that some spectators will find Intel attractive. Value is always subjective, but I suspect the stock’s visitation to the March lows has bargain hunters perking up. Dividend seekers also count themselves among the interested. Nothing boosts yields faster than a price plunge. At 2.7%, Intel’s payout has now climbed well above the S&P 500’s 1.62% yield.
Bull or bear, I think the stock chart provides enough action for both animals to play. Let’s take a closer look at the price movement to see where I’d look to deploy trades.
Intel Stock Charts
The weekly time frame provides a few reasons for optimism. For starters, we’re testing the rising 200-week moving average. It’s a long-term level that doesn’t come into play often, but when it does, buyers usually swarm. The accompanying ten-year chart shows multiple reversals forming at this smoothing mechanism, with the most recent being March’s bottom.
Even if this particular test fails, there’s another major horizontal support zone looming close at $43. We bounced off of this level half a dozen times in the past three years. I suspect bulls will be quick to defend it on any future retests.
The damage to the daily chart has been significant. We’re well below all major moving averages, which is arguably the biggest case against entertaining bullish trades right now. The one silver lining for buyers is we’ve started to see prices bottom out. A higher pivot low formed last week and the downside momentum has finally slowed.
If you want more confirmation before pulling the trigger on bottom fishing plays, then use a break above $50. It’s short-term resistance and needs taking out for further evidence that bulls are returning.
Bears still hold the high ground. The past few weeks of chop were warranted after such a nasty drop. Short sellers will argue we’re forming a bear flag or consolidation pattern before the next descent. They could be right, but I wouldn’t enter bear trades until support gives way. A break below $47.75 is the trigger point.
Two Trades
The only bull trade I’d consider is a naked put. It offers payment for your willingness to buy shares at a discounted price and establishes a profit zone that generates profits even if Intel stock trades sideways or slightly lower.
Trade One: Sell the September $45 put for 52 cents.
If you believe Intel ultimately returns to the low $40s, then buying put verticals when we take out $47.75, support is a smart bet.
Trade Two: Buy the October $47.50/$42.50 bear put for around $1.30.
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