Intel Stock: Textbook Head-and-Shoulders Pattern

Back on April 23, I wrote about the possible development of a head-and-shoulders pattern on Intel’s (NASDAQ: INTC) weekly chart. At that time, the stock was rising, but it looked like the second shoulder would form near the $35 level. That is exactly what it did.
The date of the previous article is marked with the blue arrow. Intel stock proceeded to rise from $32 to within pennies of $35, but then it reversed course and dropped back down below $29. This is a textbook head-and-shoulders formation.

Now that the formation has played out, I see Intel reversing course again and moving higher in the weeks ahead. The weekly stochastic readings are in oversold territory, and that has been a pretty good time to buy the stock over the last few years. Secondly, it looks like the $29 area is going to act as support now.
The daily chart provides more bullish ammunition, with the support of the $29 level showing and the daily oscillators near oversold territory. The pattern in the stochastic readings looks similar to the pattern in late March, right before the stock bounced from the $29 level to above $34.50. The 10-day RSI just hit the lowest level it has reached in over two years.

Intel is scheduled to release earnings after Wednesday’s the closing bell, so that creates somewhat of a dilemma. I am not a fan of buying stocks the day before earnings are released, so you may want to wait until after the earnings announcement. Intel has a history of beating earnings estimates, but the stock doesn’t always jump as a result.
The consensus earnings estimate calls for the company earning $0.50 per share. That has been ratcheted down from $0.52 over the last 30 days. The sentiment toward Intel has been moving toward a more bearish stance heading into the earnings report, with the number of shares sold short jumping from 116 million to 128 million in the last month. The short interest ratio stands at 4.3 currently.
The analyst ratings show 21 “buy” ratings, 18 “hold” ratings and seven “sell” ratings. Over the last few months we have seen a few analyst migrate from a buy rating to a hold rating.
I like Intel for an intermediate-length trade, say four or five weeks, but I would wait until after the earnings report is released. Should the company disappoint on its earnings report and drop significantly below the $29 level, that changes everything and I would stay away from the stock for the time being.
If the company offers a better-than-expected earnings report and outlook, Intel stock may jump a little higher, but there will still be room to the upside. I would look to buy the stock below $31 with a target above the $36 level.

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