The Spectre and Meltdown chip bugs have captured the tech world's attention, dropping Dow component Intel Corporation (INTC) into three-month support in the low $40s. The massive scope of the security flaws make product recalls a near impossibility, but software fixes are already being distributed, and the chipmaker is unlikely to depart from its bullish trajectory in the coming weeks, offering a potential buying opportunity. 

The bugs are not company specific, also affecting Advanced Micro Devices, Inc. (AMD) and ARM Holdings, co-owned by SoftBank Group Corp. (SFTBF) and Vision Fund. Highly liquid Intel stock has offered a convenient target for short sellers and predatory algorithms, but at least so far, the decline has generated little or no technical damage. Even so, dip buyers may wish to wait for a down leg that fills the Oct. 27 gap between $41.50 and $43.50 before jumping on board. (See also: AMD Stock: Dip Buyers Locked and Loaded.)

INTC Long-Term Chart (1991 – 2018)

 

A multi-year uptrend exploded to the upside in 1992, splitting four times while lifting the stock more than 70 points into the 2000 all-time high in the mid-$70s. It plunged when the internet bubble burst, dumping more than 80% into the low teens in the fourth quarter of 2002. A bounce into 2003 stalled just below the .382 Fibonacci bear market retracement level, printing the highest high for the next 11 years.

Two lower highs into 2007 sharply underperformed the broad tech universe through the mid-decade bull market, setting the stage for a deep slide during the 2008 economic collapse. The nine-year downtrend finally end at $12.05 in March 2009, while the subsequent recovery wave stalled near $30 in 2012. Two years of quiet sideways action yielded a 2014 breakout that generated substantial buying power into December 2014, stalling just three points above the 2003 high. 

A three-year cup and handle pattern generated a 16-year breakout in the fourth quarter of 2017, lifting the stock to a 17-year high at $47.64 in mid-December. That lofty level marks the 50% retracement of the post-millennial downtrend, with tougher harmonic resistance sitting just above $50 at the .618 retracement level. Meanwhile, the monthly stochastics oscillator has just reached the overbought  level but is showing no signs of crossing over into a new sell cycle. (For more, see: The Top 4 Intel Shareholders.)

INTC Short-Term Chart (2015 – 2018)

 

Sideways action into the 2017 breakout carved a 13-point depth that now targets a measured move into the .618 retracement level near $51. More importantly, sell-offs into the upper $30s should offer historic buying opportunities due to the multi-decade breakout. Meanwhile, two-month price action has drawn the outline of a five-point rectangle pattern just above the unfilled post-earnings gap. That hole could act as a magnetic target until it gets filled with a decline to $42.50.

The stock bounced at the 50-day exponential moving average (EMA) last week, with that intermediate support level narrowly aligned at the bottom of the rectangle. A bounce up to range resistance could generate quick profits, but a trade entry following a gap fill will offer more advantageous reward:risk. Market players taking exposure at that level will need to watch price action at the range breakdown, with a buying surge setting off bullish signals while a reversal would raise the odds for a test at breakout support in the upper $30s. 

On-balance volume (OBV) has outperformed price action since last decade's bear market, posting new highs in 2013 and 2014. A distribution wave ended in the first quarter of 2016, generating healthy buying pressure that has matched constructive price action. The indicator posted a new high in December and turned lower following the bug disclosure, dropping to a two-month low that has held well above the October breakout level. (See also: Intel Will Take More Risks, Says CEO in Internal Memo.)

The Bottom Line

Intel sold off on high volume following reports of a worldwide security flaw but has paused at two-month support at the top of a two-point unfilled gap. The bottom of the gap could offer a buying opportunity, ahead of a strong bounce that reaches the lower $50s. (For additional reading, check out: Intel CEO's Stock Dump Under Scrutiny.)

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

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