Intel Beats Estimates, but Stock Crashes on Weak Outlook

Semiconductor giant Intel Corporation (INTC) beat earnings per share (EPS) estimates on July 23, but weak guidance caused the stock to gap significantly lower on July 24. Intel stock failed at its semiannual risky level at $65.02 on June 5. It was above its annual pivot at $57.17 when it reported its earnings beat, but gapping below this level on July 24 caused a crash to as low as $46.97 on July 31.

The company has a history of beating quarterly results, but cautious guidance has been a major problem for Intel. The company has beaten expectations in 26 consecutive quarters. Intel is reasonably priced with a P/E ratio of 8.59 and a dividend yield of 2.73%, according to Macrotrends.

The stock closed Monday, July 3, at $48.30, down 19.3% year to date and up 10.7% from its March 16 low of $43.63. Intel is in bear market territory at 30.3% below its Jan. 24 high of $69.28.

Intel makes computer chips for integrated digital platforms for the computing and communications industries. The company is one of the old-time tech stocks that lags its tech-bubble peak, which was set at $75.81 in August 2000. Intel focuses on data centers services for server, networking, and storage applications, and it provides applications in cloud computing. The company also makes computer chips for self-driving cars, artificial intelligence, and the Internet of Things.

The daily chart for Intel

Daily chart showing the share price performance of Intel Corporation (INTC)
Refinitiv XENITH

The daily chart shows that Intel had been above a golden cross since Oct. 25, 2019, when the 50-day simple moving average (SMA) moved above the 200-day SMA. This buy signal tracked the stock to its 52-week high of $69.29 set on Jan. 24. Intel is about to confirm a death cross, as the 50-day and 200-day SMAs are converged at $58.58 and $58.47. A negative crossover will likely occur tomorrow.

The stock had a positive reaction to earnings on Oct. 25. It also had a positive reaction to earnings on Jan. 24, which led to the high that day. Intel fell below its 50-day SMA on Feb. 25 and then fell below its 200-day SMA on March 13, leading to the March 16 low of $43.63.

Following the V-shaped bottom, the stock returned to its 200-day SMA on March 24 and then reached its 50-day SMA on April 7. Note how the 50-day and 200-day SMAs kissed each other on May 5. This lack of a negative crossover led to the test of its semiannual risky level at $65.02 on June 5, which was a major selling opportunity.

Following its July 23 earnings report, Intel stock gapped below its annual and quarterly pivots, both at $57.17. The low of $46.97 on July 31 lines up with this week's value level at $47.13.

The weekly chart for Intel

Weekly chart showing the share price performance of Intel Corporation (INTC)
Refinitiv XENITH

The weekly chart for Intel is negative, with the stock below its five-week modified moving average of $54.39. The stock is above its 200-week SMA, or reversion to the mean, at $47.44, which was tested last week as a buying opportunity.

The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 24.45 this week, down from 33.14 on July 31. Back during the week of Jan. 3, this reading was above 90.00 on a scale of 00.00 to 100.00, which put the stock in an "inflating parabolic bubble" formation – and this bubble popped big time.  

Trading strategy: Buy Intel shares on weakness to the 200-week SMA at $47.44 and reduce holdings on strength to the monthly, quarterly, and annual risky levels at $55.64, $57.17, and $57.17, respectively.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.

The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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