INTC Stock: Backtest
In October, Intel Corporation (NASDAQ:INTC) reported earnings that beat estimates on both the top and bottom lines. Everything seemed great until Intel management threw a wrench into the works when they lowered their fourth-quarter guidance, disappointing Wall Street and investors.
The investing community punished INTC stock by taking it down 5.9% the next day. This was only the beginning of the slide, as INTC stock continued to sell off until support was finally met at $33.42.
All this selling pressure was putting my bullish view on Intel stock to the test, and this is exactly what this investment was doing as it was completing a backtest.
My bullish bias on Intel stock was generated by a bullish pattern breakout. This pattern has the potential to take Intel stock back to levels not seen since the dotcom mania. That is when INTC stock peaked at $52.87 in August 2000. The backtest serves to reaffirm that this is still a possibility.
The following Intel stock chart illustrates the pullback in price from a long-term perspective.
Chart courtesy of StockCharts.com
The chart above illustrated how INTC stock broke out of a consolidation pattern. Consolidation patterns follow impulse waves. These patterns offer an area of temporary price equilibrium, and any overbought conditions are quickly alleviated. Once the consolidation pattern is complete, a new impulse wave can develop.
In July 2016, INTC stock broke out of this consolidation pattern, signalling that a new impulse wave is underway. The price got off to a good start, but the rise in the price was halted after the disappointing earnings report that sent INTC stock tumbling. The good news is that the weakness in the price has done little in the way of damaging the overall picture.
The pullback in the price acted to reaffirm the bullish breakout by backtesting the trend line that served as resistance, and indicated that a new impulse wave is now underway. This backtest is highlighted on the Intel stock chart above.
The moving average convergence divergence (MACD) indicator (in the lower panel of the chart) crossed in a bullish manner on August 2016. MACD is a simple and effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish signals. This signal is still bullish and indicates that bullish tailwinds prevail, and that the bulls are still in control.
The following Intel stock chart illustrates that the trend still remains bullish using a short-term perspective.
Chart courtesy of StockCharts.com
Year-to-date, Intel stock has set up and traded along a well-defined uptrend line. This line is created by connecting the troughs on the price chart, and this trend line has effectively acted as support when any selling took place in INTC stock.
The sell-off in INTC stock, caused by the the earnings report, ended immediately after the price tested this trend line. As long as the price remains above this trend line, the trend toward higher prices is intact and the impulse wave should continue to develop.
In July, Intel stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this momentum indicator.
Both moving averages are from crossing in a bearish manner and, as result, momentum is still bullish and the bulls are still in control. The path of least resistance remains higher.
Bottom Line on Intel Stock
My bias on Intel stock remains bullish, and the recent price weakness in INTC stock has only served to reaffirm my bullish bias as the backtest was completed successfully. As long as INTC stock continues to trade above the uptrend line, highlighted on the chart above, my bias will remain bullish.