Dow component Intel Corporation (INTC) rallied to a 20-year high in January but has fallen from grace since that time, posting a 16% year-to-date loss. Ineffective management, poor execution, and rollout delays have underpinned an institutional exodus, at the same time that the PHLX Semiconductor Index (SOX) has surged more than 50%. Sadly, there are no signs that the old-school tech behemoth has embarked on a path that will forestall equal-sized 2021 losses.
- Intel stock has fallen 16% year to date.
- Management has steadfastly refused to deal with major structural issues.
- The stock may be carving a long-term topping pattern.
- The January Effect could offer a short-term trading opportunity.
Rivals have jumped on Intel's missteps, scooping up precious market share. Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA) shares have soared to all-time highs as a result, dazzling new customers with lightning-fast chips and competitive prices. Ominously, Apple Inc. (AAPL) now smells the wounded beast and is reportedly expanding its 2021 CPU production. That competitive challenge could emerge as Intel's biggest threat in coming years.
Bottom fishers are growing more aggressive on Intel despite the malaise, with price action dropping into support levels that fueled upticks in 2018, 2019, and March 2020. In fact, Intel stock bounced off that level in October and has rallied about 16% into December, filling the big October gap between $48 and $53. However, this is the wrong time to own Intel because it's December, when investors think about selling their weakest positions to reduce annual tax bills.
The beaten-down semiconductor giant could offer a more positive result heading into 2021, with the January Effect having the potential to lift the prior year's biggest losers. Even then, a trading strategy might work better than a long-term investment because the Jan. 21 earnings report is unlikely to attract buying interest unless the company embarks on a full-scale reorganization plan. That doesn't seem to be in the cards because management has steadfastly refused to admit that there's a problem.
Wall Street consensus has deteriorated throughout 2020, with the current "Hold" rating based upon 4 "Buy" and 14 "Hold" recommendations. More importantly, 5 of the 24 analysts covering the issue recommend that shareholders close positions and move to the sidelines. Price targets now range from a low of $38 to a Street-high $70, while the stock is set to open Wednesday's session less than $1 below the median $51 target.
A reorganization is a significant and disruptive overhaul of a troubled business intended to restore it to profitability. It may include shutting down or selling divisions, replacing management, cutting budgets, and laying off workers.
Intel Long-Term Chart (2000 – 2020)
A multi-year uptrend posted an all-time high at $75.81 in 2000 and gave way to a persistent downtrend that ended at a 12-year low in 2009. The subsequent recovery wave made little progress until 2014, when buyers lifted the stock into the .382 Fibonacci selloff retracement level in the mid-$30s. That level marked resistance into a 2017 breakout that generated the most prolific returns of the decade before running out of gas in the summer of 2018.
Price action since that time has carved a potential topping pattern near the .786 Fibonacci selloff retracement level, a popular graveyard for uptrends. Support at the .50 retracement in the $40s has been tested four times, while that level has now aligned with the 50-month exponential moving average (EMA). A rally into pattern resistance in the upper-$50s is possible in this configuration, especially with the monthly stochastic oscillator crossing at the oversold level ahead of year end.
A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0–100 bounded range of values.
The Bottom Line
Intel stock could offer a profitable bounce after December tax-selling season, but this old-school tech behemoth may have entered a secular decline.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.