The Chip War with China has been a game of chess between two superpowers.
Last night, China made the latest move, and this morning, it’s taking a few big names down - namely Intel (INTC), AMD (AMD), and Microsoft (MSFT).
Headlines splashed across my screen this morning that China is moving to implement guidelines that will remove Intel and AMD chips from all government servers and PCs.
The move has both Intel and AMD breaking below levels that will increase selling over the next six weeks.
Keep in mind that just two weeks ago, Intel narrowly avoided an attempt by the Biden Administration to curb the sale of Intel Chips to Chinese manufacturing company Huawei.
The China Chip War is now heating-up to a level that is trumping Intel’s recent “good news.”
Last week, we talked about Intel’s new deal with the Biden Administration. The billions of dollars from the CHIPS Act are set to propel the company to the top of the domestic chip manufacturing sector, but that’s years down the road.
The announcement was great news for the Intel bulls and would normally be a catalyst for long-term growth for the company. Instead, the market is focusing on the “noise” that continues to be created from the growing Chip War with China.
The crosswind of the situation has a lot of investors questioning how to handle Intel from a trading perspective.
Let’s break the short- and long-term trade on Intel down right now.
I’ll also summarize my long-term approach to using key prices to my long-term advantage.
In the Short Term…
First, a step-by-step breakdown of the short-term outlook for Intel.
Intel shares moved into an intermediate-term bear market trend in early March as the stock’s 50-day moving average shifted into a declining trend. Historically, a stock like Intel will close lower two days out of three when the 50-day is declining.
Shares are currently heading to a test of the 200-day moving average, which is sitting at a price of $39. That’s the technical support that the bulls will be eyeing, but until then, the stock will decline rapidly.
Failure for the 200-day moving average to hold the stock above $39 will result in another wave of technical selling pressure that will target another 12% decline to $34, which is where the stock becomes a long-term buy for the value and technical traders.
And in the Long Term…
Next, a breakdown of the long-term outlook for Intel.
Put your Warren Buffett hat on here. Ironically, Buffett’s Berkshire Hathaway (BRK.A) does not own Intel - but it doesn’t own Nvidia (NVDA) either.
From a long-term perspective, Intel remains a buy.
The fundamental turnaround that the company is undergoing presents a rare opportunity to purchase a company as it reinvents itself. I always remind people of the turnarounds we’ve seen in Citibank (C), General Electric (GE), and IBM (IBM).
But today’s move from China, along with broader market selling, is set to take the stock below the critical levels that I describe above.
That in mind, my long-term approach is to dollar cost average into Intel shares at the prices detailed above.
Increasing my position at $39 and then $34 lowers my average cost per share.
Bottom Line
Intel has been making the fundamental moves to secure itself as a long-term leader in the chip space.
Despite that, the short-term headlines and political headwinds are forcing the stock to break key technical support levels.
The smart long-term investor will use this intermediate-term weakness to build a position in the stock to lower prices ahead of the company’s long-term bull run.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.