The Intel Corporation (NASDAQ: INTC) is one of the companies to benefit the most out of the disappointing jobs numbers released in the United States last Friday. The reason for that is simple; Disappointing NFP data is an indicator that the economy isn’t as strong as suspected, and the Fed may have to postpone rate hikes. This will show in the markets as stocks seeing noticeable gains.
When The Fed, arguably the most important central bank in the world, makes a move on interest rates, the entire market moves. As a consequence, the rule of thumb is calling for higher stocks when a central bank lowers rates. Similarly, you can also expect lower equities when rates are being raised. This is the way the financial markets work.
The last NFP (Non-Farm Payrolls) data showed the US economy adding fewer jobs than expected in April. The March NFP data was also revised lower. This makes April the second consecutive month that the US economy has produced jobs data below market expectations, and can be viewed as the continuation of a trend that seems to be stronger with each month.
The Federal Reserve in the United States has a dual mandate, one of which is to create jobs. If the jobs market is not improving or reaching Fed targets, then there is no chance of a rate hike anytime soon. As a direct consequence, stocks are favored.
If you are looking to pick one stock to bet on a rise, the first thing you should do is look at the whole index, then pick the asset that is being favored by technical analysis patterns.
Patterns repeat themselves. Changes made through time are not initially visible, therefore trading based on pattern recognition is one way to go. Combining this with a strong fundamental analysis gives you the strongest possible “one-two-punch” to win with the markets.
This brings us to Intel. The company is ranging between 32 and 38 dollars for almost a year now. The recommended trade was to buy put options at the top of the range, namely at the 36-37 area, and call options at the lower base of the range, namely the 31-33 area.
Now that price is at the lower range, we have the technical reason to buy a call option. However, there are two fundamental reasons to buy call options as well:
- The first is related to the NFP aspect that we covered in the first half of this article.
- The second reason is China’s third interest rate cut in six months.
Any cut by the second-largest economy in the world means stimulus for the stock market and world economy in general. That being the case, buying call options on the lower side of the range for Intel is the way to go. I am favoring an end of the month expiration date.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
