Intel Corporation (NASDAQ:INTC) shares are higher by nearly 8% year-to-date thanks to the latest rally. While INTC stock remains constructively positioned through a multi-month lens, in the near-term, things look increasingly overbought. Traders long Intel should consider taking at least partial profits or even using options strategies to generate some income, as shares could stall for a while.
On Aug. 18, I offered a bullish view on Intel stock and argued for an upside price target around the $40 mark. On Monday, INTC ticked the $38 mark and started showing some near-term signs of exhaustion. While shares haven’t quite reached my $40 price target, they have been a nice upside trade since mid-August.
Nonetheless, I am taking a step back from this stock for now.
Semiconductor stocks — as represented by the Market Vectors Semiconductor ETF (NYSEARCA:SMH) — have had a good year thus far. The SMH ETF is giggling in green to the tune of about 25%. Intel is currently SMH’s top weight at 13.5%, so the ETF is clearly outperforming its largest holding. However, INTC stock has been a good signal for the general direction of semiconductors … so it could be signalling a pause in the SMH, too.
INTC Stock Charts
On the multiyear weekly chart, we see that INTC stock wrote out a so-called inverse head-and-shoulders pattern in 2015 and into Q1 2016. I’ve marked this with three blue triangles. Also note that the August 2015 lows held the stock’s 200-week simple moving average, which also formed the head of the inverse head-and-shoulders formation.
With the July/August rally, however, Intel last week reached its late 2014 highs around the $38 area. INTC very well may pause here for a while.
On the daily chart, note that after an already steep incline in recent weeks, Intel stock gapped higher yet again on Sept. 16, then started showing signs of exhaustion as it failed to follow through higher.
As a rule, I don’t like to chase stocks higher when they gap up after an already steep run higher. In the case of INTC stock, last week’s up-gap also brought shares into an area of previous resistance from 2014, which could offer technical resistance for a multi-week period.
Instead of chasing INTC stock higher at this juncture, I believe investors and traders should take a step back and either cut long positions or sell out-of-the-money call spreads for income.
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