Third time the charm for chipmaker?

One of the realities of trading is that most market moves are obvious only with hindsight. When patterns are unfolding, it can be a challenge to recognize them in real time. Intel’s (INTC) recent twists and turns are a good example.

At the beginning of the year when the stock market was marching to record highs nearly every day, Intel (INTC) was turning lower after just surpassing its early-November high around $47.30. The down swing initially bottomed on January 4 around $42.50—the level of the early-December low. 

Intel (INTC), 6/14/17 – 1/10/18

Source: OptionsHouse

After a brief bounce, the stock turned lower again on January 9-10, closing just below the support level defined by the January 4 low and the December lows. Given the stock had rallied strongly in the fall, peaked in November, and then retreated from those highs after testing them in late December, at the time it may have looked to many traders like INTC was poised to break down and at least test the summer 2017 highs around $37.50-$38.50—the approximate upper level of the September 2016-September 2017 trading range, which itself was part of an even larger consolidation dating back to late 2014, as shown in the following weekly chart:
Intel (INTC), 1/26/09 – 1/10/18

Source: OptionsHouse

But a funny thing happened on the way to the breakdown: The stock turned higher once again—and, after releasing Q4 earnings on January 25, jumped 10% in a day and pushed above $50 for the first time since 2000. Intel’s strong Q4 numbers represented the 16th consecutive time the company had met or beat earnings estimates.
Intel (INTC), 6/22/17 – 2/13/18

Source: OptionsHouse

In the process, the stock leaped above the trading range’s resistance level in a single bound. To sum things up, between January 3 and January 29, INTC:

●Established a trading range support level on a downturn.

●Tested that support level and re-established bullish momentum within days.

●Capped a 12-day, 18% rally with an upside breakout of a trading range on strong earnings ($1.08 vs. $0.87/share).

Of course, that wasn’t the end of the story. After peaking on January 29, INTC retreated back into the trading range within three days and, on February 9, briefly dropped below its lower boundary when the stock market dished out its steepest two-week sell-off since 2011. For the third time, though, the stock (as of yesterday) managed to hold support.

There’s no way to know whether the broad market’s recent correction will ultimately represent a temporary interruption in an ongoing uptrend, or the first of multiple downswings. In the case of Intel, however, prices (around $44.50) are now much closer to a support level the stock has successfully tested three times in the past two months than they are to the stock’s recent high near $51—a target level for INTC shares if the market rebound gains momentum.

If the January 26 upside breakout was indeed a sign the stock intended to leave its consolidation behind and was going to attempt to revive the uptrend that preceded the range, the stock’s decline during the market correction brought prices back to a more attractive level for long-side traders.

In trading, as in real estate, it’s all about location, location, location.


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