Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM) shows signs of an upcoming price surge according to its latest charts. Taiwan Semiconductor Manufacturing Company, Limited is a Taiwanese multinational semiconductor contract manufacturing and design company.
Bullish Indications
#1 Consolidation Area: The daily chart shows that the stock has been trading within a consolidation area for the past several days. This is marked in the daily chart as a pink color rectangle. Currently, the stock looks poised to break out of this consolidation area. Once a stock breaks out from a consolidation area, it usually moves higher.
TSM – Daily Chart
#2 Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA and had moved higher with high volume. This indicates an overall bullishness of the stock.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because the +DI line is above the -DI line and the ADX line is currently moving higher from below the +DI and -DI lines.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#5 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.
#6 Flag Pattern: As seen from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic flag pattern and is marked in the chart in purple color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). The stock is also trading above its 50-week and 200-week SMA, indicating bullishness.
TSM – Weekly Chart
#7 Bullish Stoch: The %K line (blue color) of the stochastic is currently above the %D line (orange color), indicating possible bullishness.
#8 Bullish MACD: In the weekly chart as well, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level for TSM is above the price of around $126.00.
TP: Our target prices are $135 and $145 in the next 1-5 months.
SL: To limit risk, place a stop loss at $120.00. Note that this stop loss is on a closing basis.
Our target potential upside is almost 7% to 15% in the next 1-5 months.
For a risk of $6.00, our target rewards are $9.00 and $19.00. This is almost 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the consolidation area. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
— Tara
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