Dow component Intel Corporation (INTC) has posted dramatic returns so far in 2017, with the stock gaining more than 23% while lifting to a 17-year high, despite continued contraction in personal computing revenues. The stock has been working off an extremely overbought technical reading since early November and could bottom out in coming sessions, bouncing strongly to end the year at or near new highs.

The stock has finally cleared a multi-year base in the upper $30s, setting the stage for continued upside into 2018. New support at $38 should offer the best price to take longer-term exposure, but it is unlikely to reach that level in the current pullback, which has drawn the outline of a bull flag pattern. For now at least, potential downside should be limited to the 50-day exponential moving average (EMA), which is rising just two points below Friday's close at $44.68. (See also: Why Intel and Broadcom Are Still Cheap.)

INTC Long-Term Chart (1990 – 2017)

A powerful trend advance erupted after the stock broke out above the 1987 high in the first half of 1990, posting a long series of new highs while splitting four times. The rally ended at $72.69 in March 2000, giving way to a horizontal trading range that posted a higher July low at $73.75 and an all-time high at $75.81 one month later. The stock then collapsed with the big tech sector, descending in a multi-wave decline that continued into the October 2002 low at $12.95.

A bounce into the fourth quarter of 2003 stalled in the mid-$30s, well below the .382 Fibonacci sell-off retracement level, while lower highs into mid-decade kept the long-term downtrend fully intact. A final rally impulse in 2007 ended near $28, ahead of a brutal downturn that undercut the 2002 low by 89 cents in November 2008. The stock tested that level in March 2009 and turned higher, completing a double bottom reversal that also ended the nine-year decline.  

The subsequent recovery wave reached 2007 resistance in 2012, triggering a pullback into 2013, followed by a rally that reached the 2002 swing high in the mid-$30s in the fourth quarter of 2014. Price action then eased into a broad ascending triangle, ahead of an October 2017 breakout that has posted excellent volume support. That trend wave stalled at the 50% retracement of the 2000 to 2002 bear market in early November, generating a pullback that is still in progress. (For more, see: Intel Stock Awakens After Long Slumber.)

INTC Short-Term Chart (2014 – 2017)

The December 2014 high at $37.89 gave way to a selling wave that found support at $24.87 after the August 2015 mini flash crash. It completed a round trip into the prior high in November 2016, leaving behind a bullish series of higher lows. A final downturn into July 2017 signaled an excellent buying opportunity, ahead of a breakout above the descending trendline carved between October 2016 and September 2017. It mounted the 2016 high just two weeks later.

The stock gapped higher followed a late October earnings report and added to those gains into the early November high at $47.30. That may indicate a third wave continuation gap, which would translate into a measured move target near $51, now perfectly aligned with the .618 bear market retracement level. More importantly, continuation gaps rarely fill until a security completes a third impulse wave and full Elliott five-wave rally set.

A rally above $45.40 would break bull flag resistance, setting the stage for a test at the rally high and secondary breakout toward $50. The stock is trading within a few cents of that level on Monday morning, telling market players to watch closely for a buying signal. On the flip side, downside may continue to $42.50, but that seems unlikely given strong price action into the new trading week. (See also: Buy Intel on Future Revenue: Barclays Upgrade.)

The Bottom Line

Intel has been pulling back for six weeks following a dramatic breakout and rally to a multi-decade high. A buying surge through $45.40 could attract substantial interest, setting the stage for new highs into year end. (For additional reading, check out: Intel's Stock Can Rise Over 20%: BMO Capital.)

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