Warning: This Stock is Threatening a Serious Breakdown

Shares of Intel Corporation (NASDAQ:INTC) and other semiconductor stocks joined large-cap tech in dropping sharply Thursday. Through the lens of the charts, this was a concerning move. I sat up and took notice as INTC stock bumped into a critical support area for 2016.

Ever since late October — and particularly since the elections in early November — tech stocks, represented by the Technology SPDR (ETF) (NYSEARCA:XLK), have been underperforming the broader U.S. stock market.

The initial weakness came on the back of the October earnings reports, but was then quickly followed by some concerns over President-elect Donald Trump’s potential policies that could hurt the tech sector.

After Thursday’s close, I received a slew of questions from my clients and followers about what triggered Thursday’s selling spree in tech stocks.

There were a few reports and some sector downgrades, but I couldn’t pinpoint one particular thing that caused all the selling.

More often than not, what’s important is to understand the dynamics of the stock market and not any single headline.

As such, Thursday’s selling in the tech sector and picks like INTC stock was more a function of the continuation of the post-election dynamics in the stock market. Namely, tech stocks are underperforming. Financial stocks and bond yields are rallying.

INTC Stock Charts
To put this relative underperformance of tech versus the broader stock market into perspective, I made the following ratio chart.

In this ratio chart, I took the XLK (of which Intel stock is an important component) and divided it by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). We can clearly see that after some good relative strength on the part of technology stocks into late October, which took the ratio to the upper end of the up-sloping multiyear range, relative strength began to wane. Now, it has arrived back at the lower end of the range.

On the multiyear weekly chart, we see that the 2016 rally in INTC stock pushed it back up to its previous highs from 2014, in the high $30s.

Given how far and steep the stock had traveled from the 2016 lows into the high $30s, it is not surprising that it ran out of steam.

Taking out multiyear highs on a sustainable basis takes time. Through that lens, INTC stock might just be in need for a further pause, just so it can rest up and coil up before it ultimately pushes higher again.

On the daily chart, we see that Intel’s faltering began on Oct. 19 when it reacted negatively to the earnings report from the previous day. The stock gapped lower, and a couple weeks later it had fully retraced gains that took it several months to accumulate.

After an initial multiweek bounce following the election results in November, INTC stock three days ago reached a technical confluence resistance level made up of its 50- and 100-day (blue line) simple moving averages. (Note: The 50-day SMA is not shown on the chart.) This has pushed Intel shares back down to the red 200-day SMA.

The reversal three days ago qualifies as a lower high, and the 200-day SMA also lines up with the 2016 support line drawn off the February lows (purple dotted line).

Bottom Line
While it’s entirely possible that Santa will come to the rescue and keep INTC stock from significant further downside, the price action over the past three days now threatens a break of support around the $33.50 area. A weekly close below this area could open up opportunities on the short side, with a next downside price target around $31.50.

Any strong bullish reversal from here would quickly call off the short-side trade.

— Serge Berger

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Source: Investor Place