The Type of Setup I Look For: INTC

For those of you that follow my posts, you know that my analysis looks at five main things: absolute performance, relative performance, momentum, seasonality and sentiment. At any particular time, many assets will have a few of those things going for them, but I try to locate the assets that have all of those things working for them at once. In the case of INTC, I think conditions are setting up for a great risk/reward trade.

First off, with any stock that’s had a nice run over an extended period of time, I like to look at sentiment and seasonality to make sure that there aren’t any blaringly obvious headwinds to be aware of.

INTC Seasonality

Analyst Coverage (Yahoo Finance)
Strong Buy 6
Buy 14
Hold 19
Underperform 4
Sell 3
Total 46
Bears as % of Total 15.22%
Hold or Lower as % of Total 56.52%

As we can see, besides the slightly below average performance in the months of February and March, there really isn’t too much that’s leaning bearish here in terms of seasonal patterns. In terms of sentiment, there seems to be a bullish bias which shouldn’t be surprising considering the run the stock has had over the past two years or so. To me, this doesn’t suggest we’re seeing any type of euphoria in the stock, at least in the analyst community, as roughly 56% of sell side analysts who cover it rate it as a hold or lower. If everyone and their mother had it as a buy, then I’d be concerned, but nothing in this data suggests to me that sentiment is at an extreme.

Now that we know that there is a neutral to bullish backdrop for the stock from a seasonal and sentiment perspective, let’s take a look at price on both the weekly and daily timeframes.

INTC Weekly

From the weekly I can gather a lot of useful information. First off, we know price is in an uptrend as measured by the series of higher lows and higher highs in price, as well as a rising 200 week simple moving average. As we can see, price met both initital price targets at the 161.8% extensions of the ’08 and ’12 declines, but failed to hold above that area of support near 33 that can more clearly be seen on the daily chart. We don’t ever like to see bullish consolidation patterns fail, for obvious reasons, but price has pulled back toward the uptrend line from the May ’14 lows and found some support. Additionally, momentum continues to remain in a bullish range, despite the negative divergence we saw at recent highs. The chart of INTC relative to the S&P 500 is also testing an important support level. Despite the recent bearish developments, price remains above the 2012 highs, trend line support and a rising 200 week simple moving average. This price action, in addition with the recent improvement of the Dow’s performance and outperformance of the Nasdaq 100, both indices of which INTC is a part of, relative to the S&P 500, suggests that pullbacks in this name should be bought.

Now that we know how the weekly chart is set up, lets check the daily for a more tactical view of the stock.

INTC Daily

As we can see from the daily, INTC put in a nasty breakdown below support highlighted by the gray shaded area near $35.50. Despite that bearish development, price action remains constructive as we found support at $32.50-$33 which corresponds with an uptrend line, an important support / resistance level and a rising 200 day simple moving average. This level also correpsonds with the 61.8% retracement of the rally that occured from October – December of 2014. Momentum, which was a concern on the weekly, remains in a bullish range as it failed to reach oversold conditions on its past two pullbacks to support. To me this confluence of support looks really strong and we have already seen a number of long bottoming tails occur last week, signaling that buyers are stepping in. I hate false breakouts as much as the next guy, especially on a gap down, but to ignore this important of a support level would be irresponsible on my part.

The Bottom Line: Tactically, I think Intel’s daily chart sets up well for a trade with a stop below last week’s lows of $32.61. We are trading in the direction of a strong underlying uptrend and have neutral to bullish seasonality as a tailwind. Like the stock’s seasonal trends, sentiment seems to be neutral to bullish at best, which is what we like to see as it’s only important at extremes. If you were waiting for a pullback in the name, I think this is the area where the stock has the highest probability of making a stand and you’re only risking roughly 70 cents to get long the name. I think that the structural trend continues to suggest higher prices and even if we only get a gap fill toward $35.30, you’ve still got a 3:1 risk/reward ratio to work with. Not bad considering all the things working in this trades favor. Below $32.61, all bets are off as the majority of our thesis will be proven wrong and the next key area of support isn’t until the low 29s.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.


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