×

The Intel Illusion: Watch Gains Disappear

If you didn’t buy Intel and technology stocks at the close Tuesday, you may have missed your chance to get in on the fun, if history is any guide.

Bespoke Investment Group examined the trading around Intel’s earnings reports the last nine years. They found three things:

1. When Intel gaps higher post earnings, more than 75 percent of the time it finishes lower than that opening price at the close.

2. One week later from the report, 80 percent of the time the stock is little changed or lower from that opening price.

3. Like Intel, when the market opens higher on the back of the results from the world’s largest chipmaker, it too tends to decline from open to close.

There are a few theories for this action, according to investors and analysts. First off, Intel is literally the most followed U.S. stock on Wall Street, with 44 analysts giving quarterly estimates. With that many eyes on the firm, it is tough to keep surprising following such a blockbuster report. In other words, the biggest gains happen before the report as analysts and investors start to catch on that a good thing is coming. Intel was already 9 percent off its July low heading into last night’s report.

The more controversial view is that maybe Intel doesn’t always live up to the great expectations in the earnings report. Intel said gross margin was 67 percent for the quarter, higher than analysts and the company expected. But it also said that this margin level would be maintained in the third quarter, through its diverse product mix and not necessarily through much higher chip prices.

Maintaining that profitability “is the first thing that may come into question from investors and analysts taking a second look at the results,” said Brian Kelly, founder of Kanundrum Capital. “The quarter was great, but how long will this last?”

Intel certaintly wasn’t bashful about its performance, titling the press release last night simply, ‘Intel Reports Best Quarter Ever’. If it’s the best quarter ever, then traders may be inclined to take profits while they can in this still very uncertain world.

As for the market’s tendency to fade, maybe Intel is not the bellwether for the economy, the technology sector and the consumer that it is made out to be. Like clockwork, most chipmakers and PC makers were bid higher in the after hours following the Intel report. Many are giving up those gains today. Google is next on the tech earnings calendar with its report tomorrow.

“Intel is at the bottom of the tech food chain in terms of knowing what the real end demand is and is the last to know about market trends,” said Peter Bookvar, chief equity strategist at Miller Tabak & Co. “I’d rather hear what Hewlett-Packard , Dell and Best Buy have to say about PC sales, than Intel.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.

Trader disclosure: On July 14, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (GOOG), (AMZN), (MON), (APC), (SUN), (FCX), (GMCR), (MYL), (MRVL), (BAC), (ADI), (ADBE), (AKAM), (HES), (ABT), (CVS), (AXP), (EMC); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman’s Firm owns (AEO); Finermans’ Firm owns (ANF); Finerman’s Firm owns (BAC) stock and calls; Finerman and Finerman’s Firm own (BAC) preferred; Finerman and Finerman’s Firm owns (BBY); Finerman’s firm owns (BP) calls; Finerman owns (C); Finerman and Finerman’s Firm own (CVS); Finerman owns (GLW); Finerman’s Firm owns (GOOG); Finerman & Finerman’s Firm owns (HPQ); Finerman & Finerman’s Firm owns (IBM); Finerman owns (JPM) stock & calls; Finerman owns (SKS); Finerman’s firm owns (PM); Finerman’s Firm owns (RIG); Finerman’s Firm owns (TGT); Finerman’s Firm owns (WMT); Finerman’s Firm is short (IJR); Finerman’s Firm is short (IWM); Finerman’s Firm is short (MOY); Finerman’s Firm is short (SPY); Pete Najarian owns (AAPL) call spreads; Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (ALTR) call spreads; Pete Najarian owns (C) calls; Pete Najarian owns (LOW) calls; Pete Najarian owns (NOVL) and calls; Pete Najarian owns (ARMH) and short (ARMH) calls; Pete Najarian owns (XLNX) calls and short (XLNX) calls; Kelly Owns (BP) Puts; Kelly Is Short (GS)

For Brian Kelly
Accounts managed by Kanundrum Capital own (AUY)
Accounts managed by Kanundrum Capital own (GFI)
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (C)
Accounts managed by Kanundrum Capital own (ELX)
Accounts managed by Kanundrum Capital own (QLGC)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (NWL)
Accounts managed by Kanundrum Capital own (BIG)
Accounts managed by Kanundrum Capital own Gold
Accounts managed by Kanundrum Capital own Treasuries
Accounts managed by Kanundrum Capital own US Dollars
Accounts managed by Kanundrum Capital are short (AMZN)
Accounts managed by Kanundrum Capital are short (RCL)
Accounts managed by Kanundrum Capital are short (XLY)
Accounts managed by Kanundrum Capital are short (XLE)
Accounts managed by Kanundrum Capital are short (AFL)
Accounts managed by Kanundrum Capital are short (CME)
Accounts managed by Kanundrum Capital are short (EWI)
Accounts managed by Kanundrum Capital are short (EWO)
Accounts managed by Kanundrum Capital are short (GS)
Accounts managed by Kanundrum Capital are short (HIG)
Accounts managed by Kanundrum Capital are short (RKH)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (XLI)
Accounts managed by Kanundrum Capital are short (FCX
Accounts managed by Kanundrum Capital are short (GFI)
Accounts managed by Kanundrum Capital are short (JOYG)
Accounts managed by Kanundrum Capital are short (XLB)
Accounts managed by Kanundrum Capital are short (XLK)
Accounts managed by Kanundrum Capital are short (V)
Accounts managed by Kanundrum Capital are short (PCAR)
Accounts managed by Kanundrum Capital are short (COF)
Accounts managed by Kanundrum Capital are short (KMX)
Accounts managed by Kanundrum Capital are short (JOE)
Accounts managed by Kanundrum Capital are short (USO)
Accounts managed by Kanundrum Capital are short (FXI)
Accounts managed by Kanundrum Capital are short (KMX)
Accounts managed by Kanundrum Capital are short (RSX)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Richard Kang
Funds Managed By Emerging Global Advisors Own (CHA), (ACH)

For Mark Mahaney
Citi Employees Own (GOOG)
Citigroup Global Markets Or Affiliate Received Non-Investment Banking Compensation From (GOOG) In Past 12 Months
(GOOG) Is Or In Past 12 Months Was A Client Of Citigroup Global Markets (Non-Investment Banking, Non-Securities-Related Services)
(GOOG) Is Or In Past 12 Months Was A Client Of Citigroup Global Markets (Non-Investment Banking, Securities-Related Services)
Citigroup Global Markets Is A Market Maker In (GOOG)

For Mark Schoenebaum
ISI Does And Seeks To Do Business With (AMLN), (HGSI), (GENZ), (DNDN), (GILD) And Has Received Non-Investment Banking Compensation In The Past 12 Months

For Mike Khouw
***NO DISCLOSURES

For Mike Darda
***NO DISCLOSURES***