Intel Corporation (INTC) shares fell more than 5% at the start of April after Bloomberg reported that fellow Dow component Apple Inc. (AAPL) would manufacture its own Mac processors, denying the chip giant an estimated $4 billion in annual revenue, or about 4% of total revenue and earnings. The stock has now recovered those losses, with sidelined players using the news as a buying opportunity.

The bounce bodes well for the April 26 earnings release, when Intel is expected to report first quarter profits of 72 cents per share on $15.1 billion in revenues. Better yet, the stock has shaken off first quarter volatility and lifted into the top Dow performance slot following years of laggard behavior, predicting healthy upside in the coming years. However, long-term technicals suggest that short-term action may include a decline into the low to mid-$40s. (See also: Is Intel in Trouble if Apple Makes Its Own Chips?)

INTC Long-Term Chart (1998 – 2018)

 

The stock split five times between 1987 and 2000, rocketing higher in reaction to the personal computer and internet revolutions. It topped out just above $72 in March 2000 and entered a narrow sideways pattern that posted a nominal new high at $73.00 six months later, with that level untested for the past 17 years. A September breakdown marked the start of a severe downtrend, reaching a seven-year low at $12.95 in October 2002.

A bounce into 2004 failed in the mid-$30s, well below the .382 Fibonacci sell-off retracement level, posting a high that was not exceeded for another decade. It drifted sideways to lower into 2008 and plunged with world markets during the economic collapse, undercutting the 2002 low by 90 cents in March 2009. That print signaled the climax of the nine-year downtrend, ahead of a bounce that stalled in the upper $20s in 2012.

The lazy uptrend reached the 2004 high in July 2014 and broke out, but the advance failed, reinforcing 10-year resistance. Price action into the second half of 2017 carved a cup and handle pattern at that level, yielding a powerful breakout that reached a multi-decade high at $53.78 in March 2018. Unfortunately for bulls, that peak is narrowly aligned with the .618 retracement of the entire 2000 into 2009 downtrend, suggesting that a climax that now favors an intermediate correction.

[Improve your ability to recognize cup and handle patterns on stock charts in Chapter 5 of the of the Technical Analysis course on the Investopedia Academy]

INTC Short-Term Chart (2016 – 2018)

 

A channeled decline off the 2016 high carved the handle of a multi-year cup and handle that targeted a measured move up to $51 following a breakout. That prediction has now been fulfilled, while harmonic resistance in the low to mid-$50s poses a fresh challenge because it predicts a reversal, dropping as low as the 50% retracement in the low to mid-$40s. As a result, a decline into that price zone could offer a low-risk buying opportunity.

A Fibonacci grid stretched across the rally that started in July 2017 organizes short-term price action, placing the October breakaway gap between $41.50 and $43 just below the 50% retracement level. Three lows near $43 have pounded out strong support, while the 200-day exponential moving average (EMA) has now risen into that price zone, reinforcing the significance of the 50% retracement on the monthly chart. Taken together, informed market players will be watching this level for buying signals if the stock heads into a deeper correction. 

On-balance volume (OBV) ended a long-term distribution phase in 2006 and drifted higher into 2014. It posted a higher low during the August 2015 mini flash crash and broke out with price in the second half of 2017, rising quickly to a multi-decade high. However, the indicator peaked in December 2017 and has failed to post new 2018 highs, suggesting modest profit taking that could bring lower targets into play in the coming months. (For more, see: Analysts Say Reaction to Apple Ditching Intel Is Overblown.)

The Bottom Line

Intel has reached harmonic resistance generated by the 2000 into 2009 downtrend and could sell off into the low to mid-$40s in the second or third quarter. (For additional reading, check out: 3 Stocks That Will Win the High-Speed Data Wars.)

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

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