Trade Recommendation: Texas Instruments
- 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
- 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.
- 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.
- 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
No position but likely to initiate a long stock/call position over the next couple of trading sessions.
Featured image courtesy of Shutterstock.