Intel Stock Holds Its Technical ‘Reversion to the Mean’

Semiconductor giant Intel Corporation (INTC) has a winning streak of beating earnings per share (EPS) estimates in 24 consecutive quarters. Even so, the stock is in bear market territory at 24.4% below its 52-week high of $69.29 set on Jan. 24. At the same time, the stock is in bull market territory at 20% above its March 16 low of $43.63.

Intel shares closed last week at $52.37, down 12.5% year to date and below a wall of risky levels between $57.17 and $58.02. The stock is reasonably priced with a P/E ratio of 11.26 and a dividend yield of 2.28%, according to Macrotrends.

Intel makes computer chips for integrated digital platforms for the computing and communications industries. The stock is a component of the Dow Jones Industrial Average, S&P 500and Nasdaq Compositemaking it an important benchmark. Intel is one of the old-time tech stocks that lags its tech bubble peak, which was set at $75.81 in August 2000.

The company focuses on data centers services for server, networking, and storage applications. It also provides applications in cloud computing. In addition, Intel makes computer chips for self-driving cars, artificial intelligence, and what’s known as the Internet of Things.

The daily chart for Intel

The daily chart shows that Intel has been above a “golden cross” since Oct. 25, when the 50-day simple moving average (SMA) moved above the 200-day SMA, signaling that higher prices lie ahead. This buy signal tracked the stock to its 52-week high of $69.29 set on Jan. 24.

At that level, the stock was well above its annual, semiannual, and quarterly pivots at $57.17, $57.37, and $58.02, respectively. However, on Feb. 24, the stock gapped below its 50-day SMA on its way to testing these key levels from my proprietary analytics. This wall of levels acted as a series of pivots (or magnets) between Feb. 27 and March 5.

When this wall broke down, the 200-day SMA became the key level to hold. On March 9, the stock fell below the 200-day SMA, ending the “golden cross” formation. The stock became a sell on strength to the 200-day SMA.

Intel stock traded as low as $43.63 on March 16 and then began its recovery. The shares popped above the weekly pivot at $46.85 on Monday and then retested the 200-day SMA as a sell level last Thursday and Friday. The stock is currently trading well below the wall of pivots mentioned above.

The weekly chart for Intel

The weekly chart for Intel is negative, with the stock below its five-week modified moving average of $55.82. The stock is above its 200-week SMA, or “reversion to the mean,” at $45.25, which was tested two weeks ago as a buying opportunity.

The 12 x 3 x 3 weekly slow stochastic reading fell to 33.21 last week, down from 36.40 on March 20. This level was above 90.00 as the year began, putting the stock in an “inflating parabolic bubble” formation, and bubbles always pop.

Trading strategy: Buy Intel stock on weakness to the 200-week SMA at $45.35 and reduce holdings on strength to the annual, semiannual, and quarterly risky levels at $57.17, $57.37, and $58.02, respectively.

How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.

Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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 shares 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 their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting 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. A reading above 90.00 is considered an “inflating parabolic bubble” formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which is typically followed by gains of 10% to 20% over the next three to five months.

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