Intel Fails Major Breakout After Reducing Guidance

Dow component Intel Corporation (INTC) fell more than 7% in Thursday's post-market session after beating first quarter profit and revenues estimates by the smallest margins while substantially reducing second quarter and fiscal year guidance. The chip giant blamed falling NAND prices and 10-nanometer (10nm) production issues for the shortfall, but it expressed hope for market conditions to "improve in the second half."

The stock failed to bounce overnight and will open Friday's session at a four-week low around $53. That doesn't seem too bad, but the decline has cut through the 2018 high at $57.60, signaling a failed breakout that may induce additional selling pressure in coming weeks. More ominously, that dead weight could affect the PHLX Semiconductor Index (SOX), generating a similar failure that has the potential to end the sector's bull market.

INTC Long-Term Chart (1992 – 2019)

Long-term chart showing the share price performance of Intel Corporation (INTC)

A mild uptrend that started in 1986 escalated in 1992 at the cusp of a historic advance, underpinned by surging personal computer sales and the advent of the internet. The stock split five times during the rally, benefiting from its membership as one of four tech "horsemen" that many advisors recommended for long-term portfolios. Buying pressure faded in the low $70s in March 2000, while an August breakout attempt failed, completing a double top that broke to the downside in September.

The stock gave up the majority of its multi-year gains before finding support in the mid-teens on October 2002, ahead of a proportional bounce that failed below the .382 Fibonacci sell-off retracement level in 2003. That marked the highest high for the next 11 years, giving way to a choppy downtrend that broke the 2002 low by less than two points after the 2008 economic collapse. It finally turned higher in 2009, entering a long-term uptrend that reached the 2003 peak in 2014.

The rally stalled about three points above that level, yielding broad sideways action, ahead of an October 2017 breakout that attracted strong buying interest. The uptick ended at $57.60 in June 2018, while the subsequent decline found support in the low $40s in the fourth quarter. The stock bounced strongly into 2019, returning to the 2018 high and breaking out to an 18-year high less than two weeks ago. That breakout has now failed, reinforcing resistance in the mid-$50s.

The 2018 rally stalled after crossing the .618 Fibonacci retracement level of the eight-year downtrend, while this week's reversal has brought that harmonic level into play once again. The red line at $42 marks the breaking point in this pattern, with a violation raising the odds that the multi-year uptrend has come to an end. However, patience is required because this broad testing pattern has now entered its 19th month.

INTC Short-Term Chart (2017 – 2019)

Short-term chart showing the share price performance of Intel Corporation (INTC)

A Fibonacci grid stretched across the uptrend since 2017 places critical range support at the .618 rally retracement level, which has narrowly aligned with the 50% retracement of last decade's downtrend. As a result, bulls need to hold the low $40s at all costs to avoid a larger-scale decline. The long-term .618 retracement at $51 (black line) marks a logical first target for the current downdraft, supported by the rising 200-day exponential moving average (EMA). A bounce at that level could gain traction, testing the underside of new resistance in the mid-$50s.

The on-balance volume (OBV) accumulation-distribution indicator posted a new high in December 2017 and failed to cross that barrier at the June price peak. The subsequent distribution wave ended at a 13-month low in October, while buying power into April is likely to print a lower high that confirms the failed breakout. Even so, shareholder loyalty and institutional interest could limit selling pressure, adding months to the testing process.

The Bottom Line

Intel stock has failed the breakout above the 2018 high after the chip giant reduced guidance, and this could dump the broad semiconductor sector into another major decline.

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

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