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Intel’s rally is a ruse and traders should blur it out

Last month bears saw torpedoes Intel (NASDAQ:INTC) after profit for the third quarter in a row. At its low, INTC stock was down 30% from this year’s high.

Sign of Intel (INTC share) at the entrance to the Intel Museum in Silicon Valley

Source: JHVEPhoto / Shutterstock.com

This took place while the Nasdaq, and more importantly, the semiconductor industry itself has reached new all-time highs. It is clear that The Street remains disappointed with the company’s performance.

However, signs of life have surfaced.

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INTC stocks are up four sessions in a row, raising the question of whether this is a dead-cat bounce or the start of a much-needed recovery. For now, all signs point to the former.

Before getting into the technical evidence, allow me to give another reason why you shouldn’t be fishing Intel here.

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Intel’s loss did not happen in a vacuum. While power and influence in the industry has waned, others have stormed in to steal market share.

Indeed, Intel’s descent has been matched and surpassed by the rise of companies such as Nvidia (NASDAQ:NVDA) and Advanced micro-devices (NASDAQ:AMD). So if you’re optimistic about the semiconductor space in general, you need to think about the smartest way to play it. You can dumpster dive and buy beat up names like Intel, or you can embrace the current leaders in the space like AMD, NVDA and others.

There’s no denying which path has proved more profitable for 2021. Year-to-date, Nvidia and AMD are up 104% and 42% respectively. Plus, they’re both at record highs. Intel, for its part, is up just 1% over the year. Worse, it’s 26% of its peak.

Even if you wanted to walk the trash can with Intel, you have to argue that now it’s time to strike. Good luck with that argument. The foundations continue to undermine the street.

With last month’s nasty gap, we’ve now seen three consecutive quarters of overnight declines. It seems extremely unlikely to report such a disappointing number, only to recover a few weeks later. I suspect it will take a surprising earnings report to turn the tide here.

And the technical attitude here certainly does not support casting a line. Let’s see why.

Intel’s graph

Intel (INTC) Weekly Stock Chart with Messy Trading Range

Intel (INTC) Weekly Stock Chart with Messy Trading Range

Source: TD Ameritrade’s thinkorswim® platform

The three-year weekly chart reveals all kinds of problems for bulls.

First, the trend is a hot mess. Many tech companies have seen their stock prices explode higher over the same period. For its part, the Nasdaq has more than doubled. Meanwhile, Intel stock remains at the same level as in 2018. Sure, you’ve paid a modest 2.5% to 3% dividend along the way, but that hardly makes up for the difference.

Currently, INTC stock is below the 200-week, 50-week and 20-week moving averages. After the gains, the sharp drop shattered the USD 52 support zone and brought more bearish momentum to the trend.

So this week’s rally looks like nothing more than an oversold bounce.

The daily chart reflects the bearish wind blowing over the larger time frame. Volume exploded during the earnings gap and continued lower. With the past four-day climb, INTC stock has returned to the gap area. These zones often turn into support and resistance, so this is the first chance to reject the rebound attempt. Even if they don’t, I still like to let this rally fade as long as we don’t get above the 20-day moving average (it’s $52).

Intel (INTC) daily chart with bear retracement.

Intel (INTC) daily chart with bear retracement.

Source: TD Ameritrade’s thinkorswim® platform

Look for a break from the previous day’s low ($49.71) to confirm the next downturn has begun. Then buy this put spread.

The trade: Buy December’s $50/$47.50 bear put at about $1.

You risk $1 to earn $1.50 if Intel falls below $47.50 on expiration.

At the date of publication, Tyler Craig did not hold any positions (directly or indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication Guidelines.

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