Dow component Intel Corporation (INTC) reports earnings after Thursday's closing bell, with Wall Street analysts expecting earnings per share (EPS) of $1.27 on $18.6 billion in first quarter 2020 revenues. The stock rallied strongly in January after Intel beat estimates and raised first quarter and 2020 guidance. Everything changed in the second half of the quarter, triggering a steep decline that forced the semiconductor giant to suspend buybacks.
Even so, Intel reported on-time deliveries through the crisis, while CEO Bob Swan recently noted a demand surge due to work-at-home requirements and more free time to play video games. This tracks the recent performance of the PHLX Semiconductor Index (SOX), which has held its bullish technical outlook despite the downdraft. However, there are no guarantees because the chip sector can be highly cyclical, with sales usually surging during periods of economic expansion and declining during periods of economic contraction.
The first quarter decline failed a breakout above 2018 resistance in the upper $50s, while the bounce into April has now reached this barrier. Accumulation readings have slumped to an 11-month low despite the uptick, significantly raising the odds for a sell-the-news reaction, even if Intel beats estimates. Alternatively, a Friday opening tick above $63 would set off a round of buying signals, opening the door to a 100% retracement into January's 19-year high at $69.29.
INTC Long-Term Chart (1987 – 2020)
The stock entered a historic uptrend after the 1987 crash, lifting from a split-adjusted 34 cents to an all-time high at $75.81 in the third quarter of 2000. It got pummeled when the internet bubble burst, descending in a complex downtrend that found finally support in the low teens in October 2002. The stock surged into the mid-$30s one year later, marking a high that wasn't challenged for the next 11 years.
Price action carved two lower highs into October 2007 and turned sharply lower, undercutting the 2002 low during the 2008 economic collapse. The eight-year downtrend finally ended at $12.05 in March 2009, offering a historic buying opportunity, ahead of a recovery wave that reached 2003 resistance in 2014. It added a few points but failed to attract committed buying interest, carving a three-year cup and handle into an October 2017 breakout that stalled in the upper $50s in 2018.
The stock has posted two nominally higher highs since that time but has still failed to complete a round trip back into the 2000 high, unlike the vast majority of the tech universe. The January 2020 buying surge reversed more than six points below that barrier, raising the potential for a massive double top. However, that bearish pattern could take months or years to evolve, so it's best to focus on shorter-term price action for now.
The rally into 2020 reversed at the .786 Fibonacci retracement of the eight-year downtrend, warning that the long-term uptrend may be coming to an end. However, the stock held deep support at the 50-month exponential moving average (EMA) in March, indicating that bulls remain in change of the ticker tape at this time. Taken together, the stock is caught between a rock and a hard place, with an uneasy balance between buyers and sellers.
INTC Short-Term Chart (2017 – 2020)
The short-term price chart shows bears gaining a strong advantage in the past year. The on-balance volume (OBV) accumulation-distribution indicator topped out with price in June 2018 and entered a distribution phase that ended at a 20-month low in May 2019. OBV reversed at resistance in February 2020 and has continued to lose ground into April, even though price has rallied nearly 13 points off the low. This marks a strongly bearish divergence, predicting that the recovery effort will soon come to an end.
The Bottom Line
Intel's strong bounce off the March low has attracted little or no committed buying interest, raising the odds for a reversal and retest of the deep low.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.