Trade view /
16 August 2016 at 8:54 GMT
Shares of semiconductor stocks such as Texas Instruments have seen a sharp rally over the past month and a half. While they increasingly look overextended through a multi-week/month lens, in the nearer-term some further upside could be played using a breakout pattern.
When Texas Instruments reported its latest quarterly results on July 25, the company issued strong forward guidance. Traders were quick to like this news and rallied the stock the following day.
Before looking at the daily chart for the specific trade setup, let's note that on the multi-year weekly chart this most recent vertical leap in TXN stock has now pushed it back to the very upper end of the multi-year ascending trading channel.
hrough a multi-week/month lens without any meaningful multi-week/month consolidation phase first, this is likely not a great spot to be buying the stock.
The daily chart, however, looks different and is close to setting up a bullish play for the near-term.
The up-gap rally after earnings on July 26 was exhaustive and led the stock to settle into a multi-week consolidation phase. This consolidation phase thus far has taken the shape of a what we refer to as a bullish pennant formation, which as the name implies has bullish implications upon a breakout move higher.
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Management and risk description
For this trade it is important to keep a clear handle on timeframes. The trade I discuss is near-term and not something to hold for more than a number of days or possibly a couple of weeks once/if the trade is triggered.
Entry: buy TXN or the CFD at $71 or higher.
Time horizon: one to 14 days.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more