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With each earnings season comes an avalanche of corporate news, and not coincidentally, an abundance of high-probability trade setups. For my part, I like to wait for a company to report its results, let emotions settle somewhat, and then see how the news affected the charts.
Semiconductor giant Intel (NASDAQ: INTC) reported first-quarter earnings after the market close on Tuesday. The company announced earnings per share (EPS) of $0.38, which beat the consensus estimate by a penny. On the top line, revenue of $12.8 billion was a touch below analysts' estimates, but the company's gross margin came in a better than expected at 59.7% versus 59%.
In terms of the outlook for the second quarter and full fiscal year, nothing changed dramatically relative to Intel's previous guidance or analysts' expectations.
After analysts had a chance to digest the news, the responses were mixed. Morgan Stanley (NYSE: MS) reiterated an "underweight" rating on shares with a $24 price target. Goldman Sachs (NYSE: GS) reiterated its "sell" rating, while Jefferies Group raised its price target from $32 to $35, giving it a "buy" rating. B. Riley & Co downgraded the stock to "neutral" from "buy," but raised its price target by $0.50 to $29.
If there is one investment theme over the past 12 months that has caught analysts and traders off guard, it's been the surprising strength of some of the old technology names like Microsoft (NASDAQ: MSFT), Hewlett-Packard (NYSE: HPQ), Oracle (NASDAQ: ORCL) and Intel. Many of these stocks haven't moved much, relatively speaking, over the past decade. But in the past year, they have again reached, and in some cases, already surpassed, important long-term areas of resistance on their respective charts.
Before looking at INTC's charts, let's take a minute to review the ratio chart of the Market Vectors Semiconductor ETF (NYSE: SMH) to SPDR S&P 500 (NYSE: SPY).
INTC is the largest holding in SMH, comprising 17.6% of the ETF, but not so large that it will completely skew the fund's direction. In other words, the relative strength that SMH has displayed versus SPY since last summer isn't just the work of INTC, but rather a reflection of general strength in semiconductors.
As far as semi stocks go, INTC is right in the middle of the pack, and its charts show it is constructively positioned for higher prices in the short and intermediate term.
The long-term chart below is the most bullish, as the stock recently snuck back up to a 13-year resistance line. As they say, the more a support/resistance line or moving average gets tested, the weaker it becomes and the more powerful the eventual break of it will be.
Also note the double-bottom from 2002 and 2009, which further strengthens the base and its attempt to break past the long-term resistance line.
On the daily chart below, INTC continues working higher and is again bumping into resistance dating back to the summer of 2012. But this time it is assaulting the resistance line from a higher low made in early February.
With earnings out of the way and the near- and long-term charts looking constructive, INTC should soon be able to overcome this lateral resistance line near $27 and work its way toward $29.
Recommended Trade Setup:
-- Buy INTC on a daily close above $27.10
-- Set stop-loss at $26.30
-- Set initial price target at $29 for a potential 7% gain in 4-8 weeks
Most investors won't be committing new money to stocks given all the uncertainty... but they should absolutely do this.
While the sector is hanging on by a thread, shares of this company have already started breaking down.
Management is taking decisive action to dramatically turn this company and its shares around.