Dow component Intel Corporation (INTC) has quietly outperformed in the past two months, holding above the October low while major benchmarks have plunged to the lowest lows since the third quarter of 2017. This bullish divergence could pay off in the first quarter of 2019, with a sturdy uptick that restores the stock's mixed technical outlook while raising the odds for an advance to new highs.

This superior performance could also presage a recovery wave in the beaten-down chip sector after a tough year that has dumped the iShares PHLX Semiconductor ETF (SOXX) to a 17-month low. That instrument dropped like a rock in October after failing to break out aove the 2000 bubble high, signaling a decline that could end its bull market run. So, while a chip bounce will delight traders, it may also mark the last opportunity for shareholders to exit at higher prices.

INTC Monthly Chart (1994 – 2018)

Monthly chart showing the share price performance of Intel Corporation (INTC)
TradingView.com

A long-term uptrend stalled near $4.50 in 1993, giving way to a broad consolidation that ended with a 2015 breakout. The momentum crowd took control immediately, generating a series of parabolic impulses into March 2000, when the rally stalled in the low $70s. A breakout attempt failed six months later, posting an all-time high at $74.81, while a downturn into October 2002 reached a six-year low in the mid-teens.

A quick recovery wave into 2003 ended at $34.60, marking the highest high for the next 12 years, ahead of a shallow downtick that accelerated during the 2008 economic collapse. The sell-off found support in March 2009 less than one point under the 2002 low, finally signaling the end of the nine-year downtrend, while the subsequent bounce took another five years to complete a round trip into the 2003 high. 

The stock lifted three points above long-term resistance in January 2015 and dropped into a sideways pattern, ahead of a September 2017 breakout that set off long-term buying signals. The rally stalled at an 18-year high in the upper $50s in June 2018, yielding a downturn that ended in the low $40s in October. The monthly stochastics oscillator entered a buy cycle at the same time, raising the odds for higher prices through the first quarter of 2019.

INTC Weekly Chart (2015 – 2018)

Weekly chart showing the share price performance of Intel Corporation (INTC)
TradingView.com

A Fibonacci grid stretched across price action since 2015 identifies two opposing outcomes. On the bull side, the July 2017 to June 2018 uptick could mark the third wave in an Elliott five-wave pattern, with the pullback into October carving the fourth wave ahead of a fifth wave climax. However, the bear side can interpret the October 2017 into February 2018 sideways pattern as the fourth wave, while the rally into June sketched the fifth wave finale. The 14-month pattern supports this darker view, drawing a nearly completed head and shoulders top.

However, the monthly stochastics crossover favors higher prices in the first quarter of 2019, raising the odds for a rally that fills the July gap between $49 and $52 50 and negates the bearish pattern. The weekly indicator has now followed suit with a new buy cycle, adding authority to the bullish prediction. Just keep in mind that a sell-off into the upper $30s would negate this view, signaling an head and shoulders breakdown that could reach the low $30s as an initial target.

Price action in the next two weeks could offer valuable clues about the eventual outcome. The stock is trading more than four points above the October low at $42.36 as 2018 draws to a close. The latest bounce has stalled at 50- and 200-day exponential moving average (EMA) resistance, setting up a test in early January. A reversal right here would warn of an eventual breakdown, while a buying spike to $50 or so would suggest that the bullish gap fill is getting under way.

The Bottom Line

Intel stock has entered a bilateral scenario with a clearly defined time limit, favoring a strong recovery in the first quarter of 2019. Conversely, the failure to respond to this tailwind could presage a major breakdown. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.