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Intel Pointing the Way for Chip Stocks

NEW YORK ( TheStreet) -- After the close on Tuesday, Intel (INTC - Get Report) reported solid second-quarter earnings. The company also indicated that they would experience slower growth in the third quarter due to a challenging global economic environment.

The stock traded slightly lower in after hours trading Tuesday. Intel opened higher Wednesday morning and led the Dow Industrials higher posting a 3.27% gain on the session.

On July 12, I profiled the stock in How to Trade Intel, saying that Intel is a key component of the Dow Industrial Average, the S&P 500, the Nasdaq and the Philadelphia Semiconductor Index (SOXX).

I showed a weekly value level at $24.95, which was tested on Friday the 13th. With a Buy rating according to ValuEngine, investors employing my "buy and trade" strategy had the opportunity to add to, or establish a long position in the stock.

The benchmark I use for the semiconductor industry is the PHLX Semiconductor Sector Index (SOX). The SOX rallied 3.55% on Wednesday, but closed the day down 0.1% year to date. The SOX set a year-to-date low at 345.50 on Tuesday, which held above the 200-week simple moving average at 344.59.

On June 25, I wrote Semiconductor Stocks key Economic Growth. A sustained rebound in the SOX led by Intel would be an indication that the U.S. economy is on the mend.

On Wednesday we learned that the Beige Book, prepared for the July 31/Aug. 1 FOMC meeting, showed that the U.S. economy grew at a "modest to moderate pace" across all 12 Fed districts in June and early July. Retail sales were described as picking up slightly and manufacturing continuing to expand slowly. In addition, developments in the housing market were described as improving.

The Weekly Chart for the PHLX Semiconductor Sector Index

Chart Courtesy of Thomson / Reuters

Even though the SOX held the 200-week simple moving average, the weekly chart remains negative with a declining momentum (12x3x3 weekly slow stochastic) reading, and trading below the five-week modified moving average at 373.83. My semiannual value level is 326.30 with this week's risky level at 374.93.


Intel, at $26.21, is rated a Buy according to ValuEngine with fair value at $29.81, which makes the stock 12.1% undervalued. The ValuEngine one-year price target is $28.35. Intel stock has gained 12.7% over the past 12 months and has averaged a gain of 2.1% over the past five years. Intel's price-to-earnings ratio is cheap at 9.9 times 12-month forward earnings estimates.
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