How to Trade Intel as it Tries to Bottom

Intel (NASDAQ:INTC) shares soared last week after the battered semiconductor company announced it would take its Mobileye self-driving-car segment public. Unfortunately, the celebration was short-lived, and INTC stock quickly fell back.

Sign of Intel (INTC stock) at entrance of The Intel Museum in Silicon Valley
Source: JHVEPhoto / Shutterstock.com

Such is the challenge with down-trending equities. They have ample overhead resistance and legions of underwater longs that are only too happy to depart with their shares at higher prices.

But all may not be lost with Intel’s bottoming efforts.

There’s still a chance the recent double bottom pattern holds as buyers return. Moreover, Intel is one of the cheaper chip stocks and offers decent premiums for options sellers. So let’s take a closer look at what would have to happen before I’d pull the trigger.

INTC Stock Charts

Intel (INTC) weekly stock chart with choppy range
Source: The thinkorswim® platform from TD Ameritrade

The larger time frame leaves much to be desired. Intel has essentially been dead money for four years despite some massive volatility along the way. What’s more, this circuitous route to nowhere has transpired while the Semiconductor ETF (NYSEARCA:SMH) has tripled!

To tread water when your industry is struggling is one thing. Doing so when profits are raining down on every one of your competitors and peers is quite another.

If you’re shopping for strength and leadership, I suggest you move along. That’s not what Intel offers. Its appeal is the nearly 3% dividend yield and cheaper valuation. To wit: it carries a single-digit price-to-earnings ratio of 9.

By comparison, Advanced Micro Devices (NYSE:AMD), Qualcomm (NASDAQ:QCOM), and Nvidia (NASDAQ:NVDA) have P/E ratios of 44, 22, and 94, respectively. Intel’s pain has been their gain.

The weekly chart shows INTC stock is stuck in a downtrend beneath all significant moving averages. No wonder last week’s news-inspired jump failed. We need to break above resistance and reverse the weekly slide before any real gains come to pass.

For now, the best chance bulls have is to hold the recent pair of pivot lows at $48. If we don’t, there’s an air pocket until $44 that could result in a quick move down.

With the big picture properly framed, we can now look at the greater detail offered by the daily chart.

Last week’s gap higher on the Mobileye news gave Intel one of the best chances to bottom in a while. Unfortunately, the selling since has been relentless. The gap quickly filled, and with Tuesday’s drop, we’re now back below the 20-day moving average (and every other one, for that matter). It’s impossible to pull the trigger with six straight sessions where we’ve closed lower than the open. The short-term trend needs to reverse first. For the trade idea below, I suggest one of two triggers.

First, wait for INTC to break above a prior day’s high. That should signal a pivot low is upon us. Second, wait for prices to climb above the 50-day moving average at $51 to signal a new breakout attempt is upon us. Until either development happens, I don’t like bulls’ chances.

Play Safe With Short Puts

Given Intel’s shoddy history and current downtrend, aggressive bullish trades are ill-advised. If you’re trying to bottom fish and want better odds of success, try naked puts instead. Consider them a bet that Intel won’t fall too much further from its current perch.

The Trade: Sell the January $47.50 put for around 90 cents.

If you want to minimize the risk, exit on a break of the strike price ($47.50). It will signal the recent double bottom pattern failed.

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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