The chip maker’s stock looks like it broke out in a big way on the shorter-term chart — but taking a longer-term investing view warns: not so fast
Intel’s stock looks like it broke out in a big way on the shorter-term chart — but taking a longer-term investing view warns: not so fast.
Whether something looks bullish or bearish is in the eye of the beholder.
Intel’s stock just had itsbest week in 25 years. How that move is interpreted by those who own shares depends on when and where they bought them, and whether they bought them as a short-term trade or as a longer-term investment.
On a shorter-term basis, the stock looks like it broke out in a big way. Longer-term trend followers may have been put on notice, but still don’t have reason to worry that the status quo won’t continue — at least for a while.
Since there are too many possible perspectives to run through, let’s try to see things through the eyes of the hypothetical shorter-term investor who bought the stock just before the breakout, to understand what course of action they might want to take after the rally. That could also help provide some insight for those with different perspectives.
First, consider that the prerally buyer had watched the stock have its worst day in 50 years in August, then saw it make several pushes below the $20 level since then — including after the chief executive got pushed out on Dec. 2 — but fail to get below $18.
Photo: FactSet, MarketWatch
Then earlier this month, bears took another whack at a sub-$20 move. But after a number of failures to push below $19, let’s say our prerally investor decided to take a chance and buy.
With this week’s rally, the stock broke through a well-defined, year-long downward trend line to suggest a new bullish trend has just kicked off. That fact that the trend line had no less than five points on it plus a close call — there only needs to be three points to define a trendline — may give the breakout even more muscle.
Photo: FactSet, MarketWatch
After the stock pulled back on Friday, that prerally buyer may be asking themselves whether they should book at least some profits.
There’s a thought among chart watchers that when you’ve reached a crossroads in your decision-making, try to look at the situation through someone else’s eyes.
Some would turn the chart upside down and look at it in a mirror.
Another way is to pull way back, take a longer-term view of the chart, then ask yourself the opposite question.
For example, that prerally buyer should look at a five-year chart, and rather than wonder whether they should sell some, ask themselves: “Would I buy that?”
From that perspective, it looks like the stock just ran into a massive overhang of resistance that has already worked once. So the answer to the original question becomes easier: Sell at least some, perhaps enough to lower the breakeven point of the position below the support zone. While there are technical signs the trade could very well work out long term, it could be quite a slog.
Photo: FactSet, MarketWatch
Previously broken support levels tend to morph into resistance when they are retested. And the more important the support, the stronger the resistance becomes. The idea is that those who bought at support, and still held it through the breakdown, would likely become sellers happy to break even if given the chance.
For Intel’s stock, support around $25 first tested in October 2022 was huge, as it stopped an 18-month drop that appeared to have started accelerating. The third attempt by bears to break that support failed miserably, and launched a doubling in the stock price.
That resistance worked very well in bulls’ first attempt at a rally, so there’s a good chance it’ll work again, at least for a while. Even if it does give way, it won’t be easy, and the prerally buyer would probably have to suffer through multiple pullbacks that question their resolve.
And if or when the resistance breaks, there’s another zone of resistance just above, at the top of the August 2024 breakdown gap, followed by previously strong prebreakdown support around the $30 level.
So a quick booking of some profit would not only ease any coming stress, it would also provide some options depending on what happens next. Trading positions don’t need to be all or nothing, as the amount sold to book some profit could always be repurchased on a dip or after confirmation of a breakout.
The chance, and urge, to repurchase could come quite soon. Despite all the daunting resistance, bulls have done enough short-term work to provide some real hope that something bigger is building.
Photo: FactSet, MarketWatch
There’s should now be strong support just below current prices, as bears should be unwilling to try another push lower. And while previous bounces off support petered out well below the 200-day moving average, which is viewed by many as a long-term trend dividing line, the latest has peaked above that line — twice.
The kicker is, the underlying rate-of-change indicator shows momentum has been building for a rally for months, as each failure by bears to break support actually added to bulls’ strength.
While rising momentum at a time when the stock stays flat for falls — bullish technical divergence — isn’t a reason by itself to buy, it can act as a warning for when a breakout does come to take the rally seriously.
So other than the prerally buyer, what message may these charts be sending to someone who is considering taking a shot at buying?
It’s probably best not to buy within the long-term resistance zone — but perhaps be ready to buy on the dip into close support (with a stop loss on a break of $18). And if resistance does eventually give way, the new trend will likely be a pretty long one.
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