Intel Corporation (INTC) stock has sold off more than 20% in the past three months, dropping to a seven-month low in the mid-$40s. Chinese trade tensions and the sudden departure of CEO Brian Krzanich have taken their tolls on the semiconductor giant, which has now dropped to the bottom of the Dow Industrial component performance list. This fall from grace has been sudden and painful, starting at a 17-year high in the upper $50s.
U.S. chipmakers exposed to Chinese markets have also been crushed in recent weeks, led by dramatic declines in Micron Technology, Inc. (MU) and Skyworks Solutions, Inc. (SWKS). Both companies book more than half their annual income in the Asian nation and now face political headwinds that could end long bull market runs. Intel books 23% of its revenues in China, also exposing a significant chunk of quarterly profits. (See also: Chip Sector Correction Looming Due to Inventory: CLSA.)
INTC Long-Term Chart (1999 – 2018)
The stock split five times between 1987 and 2000, underpinning a powerful uptrend driven by surging technological innovation and the rise of the internet. The rally stalled at $70 in the first quarter of 2000, yielding a brief pullback followed by a bounce that posted an all-time high at $75.81 in August. It failed the breakout one week later, joining the broad tech universe in a vicious bear market that continued into the fourth quarter of 2002.
Intel shares bottomed out at $12.96 and turned higher into 2003 but failed to pierce resistance in the mid-$30s. The subsequent decline continued into the second half of the decade, posting a series of lower highs and lows. Selling pressure increased dramatically in 2008, generating a climactic plunge to a 12-year low that also marked the end of a nine-year downtrend. The subsequent bounce unfolded at a snail's pace, taking more than five years to complete a round trip into the 2003 high.
The stock carved a rounded correction into the third quarter of 2017 and broke out, surging higher into June 2018's 18-year high, ahead of a steady decline that is now testing the February low in the low $40s. The uptick's final wave mounted resistance at the .618 Fibonacci retracement level of the multi-year downtrend while the decline failed the breakout, raising the odds for a long-term top. The monthly stochastics oscillator, which rolled into a sell cycle in January 2018, has just crossed into the oversold level. (For more, see: Intel’s Chip Lead Is 'Disappearing'.)
INTC Short-Term Chart (2016 – 2018)
The sell-off broke 200-day exponential moving average (EMA) support in the upper $40s in August, setting off major sell signals, and it has now reached the 50% bear market retracement. This level has aligned with the 50% retracement of the 11-month uptrend into June's high, setting the stage for a recovery effort into the fourth quarter. However, price action is displaying no evidence of bottom fishing, while the 50- and 200-day EMAs have now rolled over, generating strong resistance at and below $50.
On-balance volume (OBV) has held up relatively well through the downturn, with many investors betting that the U.S. and China will pound out a trade agreement despite political saber rattling. Monthly stochastics at the oversold level may support this view, but it will now take substantial buying power for the stock to resume its bullish trajectory. As a result, it makes sense to stand aside here and wait for a selling climax that reaches strong support at the 2016 high and .786 rally retracement level in the upper $30s. (To learn more, check out: Uncover Market Sentiment With On-Balance Volume.)
The Bottom Line
Intel has set off oversold technical readings after a painful mid-year decline, but substantial overhead supply could end the next recovery attempt quickly, setting the stage for a climactic decline into the upper $30s. (For additional reading, see: Intel's 'Biggest Risk' Remains Unresolved.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>