Intel Declines; Is it the End for PC Component Makers?
The latest company citing economic weakness as a headwind is Intel Corporation (NASDAQ/INTC). The firm drastically lowered its forecast for the third quarter based on a dramatic decline in demand, which the firm believes stems from a weakening global economy. While we have seen commodity stocks, such as iron ore producers, suffer in a weakening global economy, it now appears that technology stocks are feeling the brunt.
Some have hoped that technology stocks might be able to weather this latest economic storm because of the ability of new technologies to increase productivity without having to hire additional workers. Increased levels of productivity are one of the strongest selling points for technology stocks.
A large portion of Intel’s sales goes into the personal computer (PC) market. With PC makers lowering orders ahead of the holiday season, it becomes apparent that consumers have shifted away from traditional computers and are now opting for tablets. The environment for technology stocks continues to evolve, and it appears Intel is still relying on the consumer trends of yesterday.
Some might be thinking that PC sales are only slow ahead of the launch of the new operating system created by Microsoft Corporation (NASDAQ/MSFT). This might be the case; however, it is a dangerous time to trade technology stocks based on such a hunch. I would suggest waiting to see some early indications of adaptation of the new operating system and whether it will translate into substantially higher PC sales. Personally, I would focus on technology stocks for tablets and smartphones, as this segment appears to be the market segment for growth.
Chart courtesy of www.StockCharts.com
Intel has clearly been on a decline from its highs in early May. One will note that in early August the stock broke up through the downward-sloping trendline, a key point in technical analysis. However, the stock then subsequently fell through the trendline. In technical analysis, a failed breakout is a powerful signal that momentum cannot be sustained at current levels.
Technical analysis also indicates that, considering the stock could not hold its 50% retracement level, more selling was in order. As we currently see today, the stock did indeed fail to hold the 50% retracement level, as more shares have been dumped into the market.
Technical analysis certainly values the trendline as an extremely important indication of where the line of least resistance is likely to be. Technology stocks, such as Intel, in the traditional PC space are going to see tremendous headwinds over the next few quarters. While technical analysis indicates this thesis is likely, so does common sense.
With a global economy that continues to weaken and a shift by consumers into tablets and smartphones, I think it is going to be extremely difficult for technology stocks in the PC sector to outperform. Technical analysis would indicate that there might be significantly more selling pressure over the next few weeks.