Trade Recommendation: Texas Instruments

Technical Overview

  • Texas Instruments’ stock formed a large “diamond” pattern in 2017 (bright blue trendlines; breakout – bright blue arrow in Figure 1). As with many patterns, the “diamond” can be both a reversal and a continuation pattern (despite traditional interpretations putting the pattern under the “reversal” category).
  • The stock topped at $120.75 on January 23, 2018 before pulling sharply during the February correction.
  • The first correction in 2018 terminated at $97 (first violet arrow).
  • The mid- March correction also terminated roughly at the same price ($97.39 – second violet arrow). This formed a “tentative” double bottom pattern. It is considered tentative until the interim high (the highest point in-between the two lows) gets broken to the upside.
  • Since April, the stock also formed a small inverse H&S pattern (bottoms – white ellipses; neckline – white trendline). This pattern was already completed last week.
  • Yesterday (May 8), the stock retested two key resistances:
    • The January-March resistance (red trendline).
    • The $105 – $105.50 area, which served as both a support and resistance on numerous occasions in 2018 (orange horizontal trendline and orange arrows).
  • After the initial push higher yesterday, the stock pulled back by EOD (notice the long upper wick of the second last candle).
  • Today, the stock closed above both resistance levels.

Figure 1. TXN Daily Chart

Implications

  • The H&S pattern has a minimum price target of $111.
  • The double bottom will have a price target of $129 if completed (i.e. if the stock needs to break the interim high of the pattern to activate the target).
  • The $119 – $120.75 area is expected to serve as resistance if the down-gap gets filled.

Outlook

  • Moderately bullish while above $97 but below the interim high ($113.55).
  • The bullish thesis will strengthen if the stock closes above the interim high.
  • Outright bullish if the stock closes above $120.75.

 Trade Recommendation

  • Buy at current levels ($107.54 at EOD on May 9, 2018).
  • Target: A third at $110 (just below the inverse H&S target), a third at $119 (once the down-gap gets filled), a third at $129 (once the double bottom target is met).
  • Stop: A close below $97

Disclosure:

No position but likely to initiate a long stock/call position over the next couple of trading sessions.

Featured image courtesy of Shutterstock.

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http://www.linkedin.com/in/konstantindimov