Intel Stock May Sell Off Into Mid-$40s

Dow component Intel Corporation (INTC) fell more than 2% to a seven-week low at Monday's opening bell, adding to losses posted last week following the sudden departure of CEO Brian Krzanich, dismissed after he broke the company's fraternization policy. The timing couldn't be worse, with the semiconductor sector under pressure due to rising China trade tensions. CFO Robert Swan will replace Krzanich, who served just four years at the helm.

Thursday's positive second quarter pre-announcement failed to staunch the bleeding, highlighting the chipmaker's dependence on strong executive leadership, with Krzanich just the sixth CEO to serve in that role since the company's 1968 inception. More importantly, the stock had been showing signs of technical weakness before the news, with the catalyst the raising odds for an intermediate top and prolonged correction.  

The Trump administration will restrict Chinese ownership of U.S. technology companies at the same time our trading partner is ramping up efforts to end long-term dependence on foreign semiconductors. U.S chipmakers are heavily exposed to those foreign sales, with companies like Micron Technology, Inc. (MU) and Skyworks Solutions, Inc. (SWKS) booking more than half their annual income in the Asian nation. None of this bodes well for Intel shares in the coming weeks. (See also: Intel CEO Resigns.) 

INTC Long-Term Chart (1995 – 2018)

Intel stock powered to higher ground throughout the 1990s, lifting to an all-time high at $75.81 in the third quarter of 2000. It got crushed when the internet bubble broke, dropping in multiple waves to the 2002 low at $12.95. A bounce into 2003 failed to gain traction, stalling in the mid-$30, with that level marking an impenetrable barrier for the next 14 years. The stock drifted lower into 2008 and plunged once again, dumping to a 12-year low at $12.05.

A two-legged recovery effort lifted the stock into the upper $20s in 2012, yielding a steady pullback, followed by a 2014 breakout that stalled at 2003 resistance. Intel shares spent the next three years building a massive triangle pattern that broke to the upside in October 2017. Healthy progress into the second quarter of 2018 reached a 17-high at $57.60 in early June, giving way to profit taking that could now escalate into a full-blown correction

The monthly stochastics oscillator ended a five-month buy cycle in December 2017 with a bearish crossover that is now exiting the overbought level. This is a dangerous zone, with the indicator transiting mid-levels that can generate strong and persistent selling pressure. However, solid support in the mid-$40s at the 50-week exponential moving average (EMA) could slow or stall downside expansion, giving bulls an opportunity to build a higher low.

INTC Short-Term Chart (2016 – 2018)

A Fibonacci grid stretched across the rally wave that started in June 2017 organizes price action, highlighting strong support at the .382 retracement level in the upper $40s. It is aligned at that level with the 200-day EMA, which the stock mounted just weeks after the start of the 2017 uptrend. Volatility could spike as the decline nears round-number support at $50, with a large supply of buyers and sellers taking positions or placing stop losses

On-balance volume (OBV) topped out in 2014 and entered a mild distribution phase, posting a higher low in February 2016. It broke out above the prior high in October 2017 and topped out in December 2017, at the same time the monthly stochastics oscillator crossed into a sell cycle. It has now drifted to the lowest low in three months, with shareholders getting out of the way of scandal and political headwinds. (For more, see: Intel's Soaring Stock Is Due for a 10% Pullback.)

The Bottom Line

Intel has dropped to a seven-week low in reaction to a CEO scandal and trade tensions that could negatively affect the U.S. semiconductor industry. The upper $40s looks like a logical downside target, with strong support that favors more constructive price action. (For additional reading, check out: 5 Chip Stocks at Risk in Expanding Trade War.)

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