Last month saw bears torpedoe Intel (NASDAQ:INTC) after earnings for the third quarter in a row. At its low point, INTC stock had fallen 30% from this year’s high.
This has taken place while the Nasdaq, and more importantly the semiconductor industry itself, has been notching new all-time highs. It’s clear the Street continues to be disappointed at the performance of the company.
Signs of life have cropped up, however.
INTC stock is up four sessions in a row, begging the question of whether this is a dead-cat bounce or the beginning of a desperately-needed recovery. For now, all signs point to the former.
Before delving into the technical evidence, allow me to make a different case for why you shouldn’t bottom fish Intel here.
Consider Alternatives to INTC Stock
Intel’s loss hasn’t occurred in a vacuum. As its power and influence have waned in the industry, others have rushed in to steal market share.
Indeed, Intel’s descent has been matched and exceeded by the ascent of companies like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). So if you’re bullish on the semiconductor space in general, you must consider the smartest way to play it. You can go dumpster diving and purchase beaten-down names like Intel, or you can embrace the current leaders in the space like AMD, NVDA, and others.
There’s no denying which path has proven more profitable for 2021. Year-to-date, Nvidia and AMD are up 104% and 42%, respectively. What’s more, they’re both perched at record highs. For its part, Intel is only up 1% on the year. Worse yet, it’s 26% off its peak.
Even if you wanted to take the trash route with Intel, you have to make the case that now is the time to strike. Good luck with that argument. The fundamentals continue to underwhelm the Street.
With last month’s nasty gap, we’ve now seen three consecutive quarters of overnight declines. To report such a disappointing number, only to recover a few weeks later, seems extremely unlikely. I suspect it will take a surprising earnings report to turn the tide here.
And the technical posture certainly doesn’t support casting a line here. Let’s take a look at why.
Intel’s Chart
The three-year weekly chart reveals all sorts of problems for bulls.
First, the trend is a hot mess. Many tech companies have seen their share prices explode higher over the same time frame. For its part, the Nasdaq has more than doubled. Meanwhile, Intel shares remain at the same level as in 2018. Sure, you’ve gotten paid a modest 2.5% to 3% dividend along the way, but that hardly makes up for the discrepancy.
Currently, INTC stock is below the 200-week, 50-week, and 20-week moving averages. After earnings, the sharp drop shattered the $52 support zone and brought increased bearish momentum to the trend.
Thus, this week’s rally appears nothing more than an oversold bounce.
The daily chart echoes the bearish winds blowing on the larger time frame. Volume exploded during the earnings gap and continuation lower. With the past four-day climb, INTC stock has returned to the gap area. These zones often become support and resistance, so this is bears first chance to reject the rebound attempt. Even if they don’t, I still like fading this rally as long as we don’t get above the 20-day moving average (it’s at $52).
Look for a break of the previous day’s low ($49.71) to confirm the next downswing has begun. Then, buy this put spread.
The Trade: Buy the December $50/$47.50 bear put for around $1.
You’re risking $1 to make $1.50 if Intel falls below $47.50 by expiration.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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