How to Trade Intel After Earnings Beat

Sell Intel on strength to the semiannual pivot at $53.10 and buy on weakness to monthly and annual value levels at $51.08 and $49.60, respectively.
By Richard Suttmeier ,

Intel  (INTC) - Get Report reported second-quarter earnings after the closing bell Thurs., July 25, that beat analysts' estimates on both the top and bottom lines. Shares popped above their semiannual pivot at $53.10 and traded as high as $56.33 after the close on July 25. With Friday's open below $53.10, my call is to sell strength to the semiannual pivot at $53.10 and buy on weakness to monthly and annual value levels at $51.08 and $49.60, respectively.

When the stock moved above $53.10 in after-hours trading, it entered the twilight zone of the negative reaction to first-quarter earnings reported on April 25. The stock would have to rise to $57.23 to "fill the gap" to the April 25 low.

In its report, Intel also raised full-year guidance and confirmed that it was selling most of its modem business to Apple (AAPL) - Get Report for $1 billion. Intel's PC and data center business showed rising revenue. The chip maker and component of the Dow Jones Industrial Average also touted that it was developing technologies for the 5G network.

Intel Shares Pop After Beating Earnings Estimates and Raising Guidance

Intel also confirms $1 billion sale of most of its modem business to Apple.

Apple is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.

Going into the earnings report, Intel was up 11.1% year to date and in bull market territory 21.7% above its May 23 low of $42.86. The stock set a multiyear intraday high of $59.59 on April 17 and plunged 28% to its 2019 low of $42.86 set on May 23. The stock is thus consolidating this bear market decline. Intel is one of the old-time tech stocks that lags its tech-bubble peak, which was $75.81, set in August 2000.

The stock is reasonably priced with a P/E ratio of 11.48 and dividend yield of 2.38%, according to Macrotrends.

The Daily Chart for Intel

Courtesy of Refinitiv XENITH

The daily chart for Intel clearly shows the price gap lower following its first-quarter earnings report released on April 25. Note that the annual pivot at $49.60 was a magnet between Jan. 24 and Feb. 12 and then was crossed on weakness on May 8. The "power of the pivot" made $49.60 a magnet again between July 12 and July 18 as a staging ground for the pre-earnings strength going into July 25. The close of $47.87 on June 28 was a key input into my proprietary analysts and resulted in monthly and semiannual pivots at $51.08 and $53.10, which has become a key level to hold on weakness. Its quarter risky level is above the chart at $61.75, which appears out of reach.

The Weekly Chart for Intel

Courtesy of Refinitiv XENITH

The weekly chart for Intel is positive with the stock above its five-week modified moving average of $49.29. The stock is well above its 200-week simple moving average or "reversion to the mean" at $41.12. The 12x3x3 weekly slow stochastic reading is projected to end  rising to 47.13 up from 35.29 on July 19. At the April 17 high, this reading was above 90.00 at 91.88 as an "inflating parabolic bubble." This bubble popped with the 28% decline.

Trading Strategy: Buy weakness to its monthly and annual value levels at $51.08 and $49.60, respectively, and reduce holdings on strength to the quarterly risky level at $61.75. The semiannual pivot is $53.10 with the April 25 low at $57.23.


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How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on June 28. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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