After Intel's Chief Financial Officer Dave Zinsner said on Tuesday that a weaker economy will impact chip demand and damage the company's financials, shares of chipmakers felt the pressure on Wednesday.
Shares of Intel (NASDAQ:INTC) itself, the world's largest computer processor manufacturer, opened 2.9% lower with losses extending throughout the day. The stock closed 5.3% lower.
When investors sell in response to an announcement, as they did yesterday, it suggests they were surprised by a headline they hadn't been expecting. That's surprising to us since hot inflation and the Fed's reaction—raising interest rates—have been ongoing for some time.
Which makes us wonder if the market reacted to the company's weaker guidance because it was actually unforeseen. Technicals suggest otherwise.
We note that the price has lost nearly 40% of value since its Apr. 9, 2021, $68.26 close. In other words, the stock already has been deeply entrenched in a bear market, having fallen double the 20% required threshold for the bear market designation.
As well, the price is a downtrend, with both peaks and troughs continuously falling. The RSI fell below its support, which then turned into a resistance.
However, perhaps, after 40%, maybe a bottom is at hand? See the horizontal red channel in the chart above? Let's zoom out for more detail in order to understand what that's about.
The broader view shows that the Falling Channel since the 2021 high is possibly part of a massive H&S top since 2018.
The 50-Week MA fell below the 200 WMA in March before the stock topped. In May, the 100 WMA slipped below the 200 WMA, creating a bearish formation, where the shorter MA's are below the longer ones, demonstrating weakening price points.
If you're asking how far the price could continue to fall after losing 40% in the past fourteen months, remember that the price has been testing the 2000 levels, meaning positions before the crash. Take a look at the monthly chart going back to 1991:
If you think it's crazy that the price fell lower, many traders thought the same thing in August 2000, before INTC shares lost 45% in the following month, then extending losses further, to 83% by November 2002.
While we don't claim to know the future, there still remains a long downside. And of course, investors then were just as sure that the good times would keep on rolling.
Even if the price doesn't fall to the 2009 lows, it wouldn't be unreasonable to imagine a drop to retest the long-term uptrend line, currently at $21.
Trading Strategies
Conservative traders should wait for the price to return to the top of the Falling Channel and confirm that the neckline maintains resistance before risking a short position.
Moderate traders would also wait for the Return Move to reduce exposure, if not to confirm supply.
Aggressive traders could enter a long contrarian position in anticipation of a bounce off the May lows before joining the rest of the market with the short.
Trading Sample – Aggressive Long Position
- Entry: $41
- Stop-Loss: $40
- Risk: $1
- Target: $45
- Reward: $5
- Risk-Reward Ratio: 1:5
Trade Sample – Follow Up Short Position
- Entry: $45
- Stop-Loss: $46
- Risk: $1
- Target: $40
- Reward: $5
- Risk-Reward Ratio: 1:5