Intel’s New Enemy Besides Downgrades: Its Chart (INTC)

This was one ugly week in the stock market and frankly the worst start to a new trading year in memory.  There are very few stocks that held up during the onslaught, but one stock that performed quite poorly was Intel Corp. (NASDAQ: INTC).  It suffered some key analyst downgrades to ring in the new year:

• Friday, January 4 downgraded to Neutral from Overweight at J.P.Morgan.
• Wednesday, January 2 downgraded to Neutral from Buy at Banc of America in broad semiconductor downgrade.

There are many other analysts with Buy and Outperform ratings who may defend it Monday or mid-week.  Maybe they’ll pile in the downgrades.  That’s an unknown on a Saturday.  Either way, the charts below will show cracks. Now that you have the benefit of hindsight the chart was actuallyshowing that Intel was likely going to drop, but forecasting it withthis magnitude wasn’t the norm.

This was more than surprising.  The stock market was trying to decide if we were headed for a sure slowdown to near zero growth or an actual recession, but now it is keying off of everything now pointing to a recession.  Intel was supposed to be one of the bright spots that was going to do OK even in a downturn.  That doesn’t appear to be in the cards now if you are a pure technician. 

To make things worse, the volume kept rising as the pain got worse.  Intel traded 187 million shares the day after last earnings in October, and it traded 134 million shares the day after its earnings in July.  Yesterday saw 174 million shares trade hands.  Below is the daily trading data from this week:

DATE    OPEN    HIGH    LOW    CLOSE   VOLUME   
JAN 4    23.46    23.60    22.35    22.67    174,051,400
JAN 3    25.37    25.40    24.38    24.67    85,159,100
JAN 2    26.28    26.34    24.95    25.35    84,236,200
DEC31 26.63    27.00    26.59    26.66    23,687,800

Here are the charts showing the true carnage, and we added in charts from Yahoo!, BigCharts.com, and StockCharts.com to show the variations:

Unfortunately, when you go from source to source the moving averageschange and other data changes.  That is one of the problems of theInternet is that the data is often shy of the standards of a Bloombergor Reuters terminal or a Track Data or TradeStation.  But what isobvious as a wart on your nose is that in just one week this chart sawmajor damage.

With 50-day and 200-day moving averages violated in such a short periodit’s bad.  With every hope of an uptrend holding not having worked it’sbad.  The good news is that we are back close to the lows of August andthat the chart is screaming ‘highly oversold’ on most metrics.  But youget the idea.  Damage has been done.  Potentially severe damage.

Some may try to look at this as a climactic overselling.  But theproblem is that even if Intel rises 5% to regain roughly one-third ofthe 6% sell-off from its highs it will likely face severe resistancefrom technical traders.  Maybe a turn in the markets will change thisand maybe the company will maintain a positive beat with its earningsdue on January 15, 2008.  But no matter how you cut it and no matterhow much we prefer fundamentals over pure technicals, this is one uglytech giant’s chart regardless of any personal opinions that may differfrom this week’s trading.

Other key related articles from this week:

• Goldman Sachs on Apple & Microsoft, raised estimates
• Snapshot of Banc of America on its key chip downgrades
• Even last week, chips were fading
• Reuters Poll shows tech earnings weakening

Jon C. Ogg
January 5, 2008

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.  Join our free email distribution list for other articles on spin-offs, IPO’s, break-up values, key event previews, and more.