The post-earnings selling in Intel (INTC) has become uncanny in its consistency. Four out of the last six earnings reports have resulted in selling even as INTC’s headline earnings news has generally been OK to good. Three of the four bouts of selling followed immediately after INTC opened its first post-earnings trading day higher.
This time, INTC gained as much as 1% in the after-hours trading and opened just above the previous day’s close. This latest fade put a stamp of confirmation on the latest downtrend INTC needs to wrestle.
*Charts created using TeleChart:
Intel finished the day down 3% and completed a near roundtrip on its relative performance versus Microsoft over the past month.
Source: stockcharts.com
This roundtrip brings the performance of the pairs trade I recommended last month right back to the start. At that time, I recommended shorting Microsoft (MSFT) versus going long Intel (INTC). The very next day, MSFT soared 5% on rumors that the company would be borrowing money to pay for an increase in its dividend – a very poor start to the pairs trade. However, the trade improved rapidly from there. When MSFT announced the news nine days later, the stock promptly fell 2%. By October 4, MSFT had given up its entire post-rumor gains. This marked the maximum point of INTC’s out-performance versus MSFT.
While I regained all my losses from the puts, I decided to hold on as I had collected good profits from twice trading in and out of the INTC calls. The first trade completed after I placed a stop to protect profits, and the market quickly tripped the stop. The second trade was purely opportunistic after the dip on October 4. MSFT went on to rally and closed options expiration a few pennies higher than September’s high. All-in-all, I came out even, but allowing the puts on MSFT to expire worthless still smarts.
A more typical pairs trade leans more on patience and less on trading, but I felt compelled to do so after I realized Intel was reporting earnings before expiration of the October options – my pairs trade was not created as an earnings play. After Microsoft reports earnings, I will be looking for another opportunity to re-initiate this trade for a longer timeframe.
Note well that the NASDAQ remains at the top of its relative performance range against semiconductors. I am still expecting this ratio to drop back to the bottom of the range sooner than later.
Source: stockcharts.com
Be careful out there!
Full disclosure: no positions