Intel Surprise Blowout Puts Sell-the-News Danger in Play

Following a quiet morning, a bout of volatility hit the market Thursday afternoon. A combination of uncertain news about Iran and layoff announcements by Meta Platforms (META) and Microsoft (MSFT) caused a sharp drop and rebound. Breadth dropped to 36% gainers but no real technical damage was done.

This action illustrates a high level of emotion as investors grapple with the heart of earnings season and the confusing Iran situation.

Five of the Magnificent Seven (MAGS) names will report next week, and the response to those reports will have a major impact on whether the current rally continues or the bounce fails.

The market is at a key technical juncture as it hits resistance levels at all-time highs.

Intel Delivers

The reaction to Intel (INTC) earnings is particularly interesting. It is up about 25% early on Friday after it reported first-quarter revenue of $13.58 billion vs a $12.42 billion estimate. That is its biggest revenue beat in more than five years.

Intel's EPS was stellar at $0.29 vs a $0.02 estimate, and Q2 revenue was guided to $13.8 billion to $14.8 billion vs. $13.11 billion consensus. Q2 EPS guidance was $0.20 vs $0.10.

To say the market was surprised is an understatement.

Semis on a Historic Run

That is a solid beat on all metrics and illustrates why semiconductors have been on a historic run. The VanEck Semiconductor ETF (SMH) is up about 22% in April alone and 143% over the past year. The group is the primary beneficiary of AI infrastructure spending and there is no end in sight. Investors anticipate that the upcoming Mag 7 earnings reports will reinforce the view that chip spending will continue to boom.

The technical situation for semiconductors is similar to that for the overall market, but it is even more extreme. There are massive overbought conditions but investors are chasing because they are anticipating a steady supply of positive news and are afraid of being left behind. There is very strong technical support and any pullback is short-lived as dip buyers jump in.

The Sell-the-News Risk

The key issue to consider is that this is a very dangerous setup for both chips and the overall market due to a potential sell-the-news reaction. If the overall market keeps running up in anticipation of a resolution of Iran, then there won't be many buyers left when the news eventually hits. The inclination to take some massive profits will be strong.

Semiconductors will face a similar response next week when five Mag 7 names report and they all talk about their infrastructure spending plans. Last quarter it was the increased capital spending that triggered selloffs in all of the Mag 7 names. They have recovered very well but will face a similar dynamic again.

A Path Opens for Warsh

Another interesting issue developing is that President Trump is considering a shift in the DOJ's investigation of the construction of a new Fed headquarters. This would clear the path for the nomination of Kevin Warsh, which will be viewed as a market positive due to his signaling of a dovish bias.

Game Plan

The wildcard for the market remains developments in Iran, but major earnings reports will add volatility and uncertainty. My game plan is to manage positions carefully and do my best to keep account balances as close to highs as possible. I don't want to give back recent gains.

On the other hand, I see some good technical setups and earnings reports will create some new opportunities, and I'll be aggressive in going after them, especially if overall market conditions remain strong. I've increased my cash position to around 25% so I have some flexibility. My focus is on finding some new leaders that will emerge when earnings are reported.

We have a quiet start on Friday morning, but I anticipate more Iran-generated volatility.

At the time of publication, Rev Shark was long META.