New Intel Price Target After CPU Hike Report

Shares of chip designer/manufacturer Intel (INTC) were trading notably higher on Tuesday morning after an upgrade at Northland Securities and after a report at Digitimes emerged concerning potential price hikes for Intel’s CPUs. The idea would be to prioritize improved gross margin over increased market share.

Analyst Gus Richard of Northland Securities took his rating up to Outperform (buy-equivalent) from Market Perform (hold-equivalent), citing what he termed as “material progress” in the firm’s turnaround and continued benefits generated by the ongoing server CPU shortage.

Richard also believes that Intel’s partnership with Tesla (TSLA) on the Terafab semiconductor project will “materially benefit” the firm’s foundry business. In addition he printed out the national security implications for the success of this business. The fact that Digitimes is a Taiwanese publication might just explain why such a focus on Intel’s foundry business is coming from that corner of the world. In full disclosure, I remain long both Intel and Taiwan Semiconductor (TSM).

Six Weeks to Go

…Until Intel reports the firm’s third quarter financial results. Wall Street is looking for an adjusted EPS of $0.39 versus the year-ago comparison of $0.23. The firm is also expected to deliver sales growth of 20.3%. Very interestingly, of the 33 sell-side analysts that cover INTC, all 33 have already increased their earnings estimates for the firm since the start of the period. Things that make you go, “hmmm…”

The Chart

I now have to update this chart from the one that I showed readers three weeks ago as the inverse head-and-shoulders pattern has evolved somewhat. This has changed the time frame for the pattern, but not the general trade idea.

Readers already know that through this past spring into very early July, the shares of INTC developed that ominous rising wedge of bearish reversal that worked quite well. The share price peaked on June 30. The sell-off that ensued ran for much of the summer as the stock lost its 21-day EMA and its 50-day SMA along the way.

What came out of that selloff ended up being a pretty clear inverse head-and-shoulders pattern of bullish reversal, now with a $107 pivot, up from $103. The stock has taken back its 21-day EMA, bringing the swing crowd back on board. On Tuesday morning, INTC has retaken its 50-day SMA. Holding that gain would force professional portfolio managers to increase log-side exposure.

Looking at the indicators that I most often use, relative strength has rallied past the neutral line. Below the chart, however, the daily MACD is really looking more bullish. The histogram of the nine-day EMA has found its way back above the zero-bound and has held that ground. In addition, the 12-day EMA has moved back above the 26-day EMA. That bullish signal would be amplified should both the 12-day and 26-day lines move into positive territory together with the black line still over the gold line.

Target Price: $134 (up from $128)

Pivot: $107

Add: Down to the 21-day EMA

Panic: Loss of the 200-day SMA

At the time of publication, Guilfoyle was long INTC and TSM equity.