Stocks were mixed on Tuesday with earnings and economic news driving the moves for the most part. JPMorgan Chase and Citigroup both beat earnings estimates and moved higher. When news broke that the tariffs between China and the U.S. would stay in place, stocks gave up most of their gains.
The Russell moved up 0.37% and was the top performer on the day. It was joined in positive territory by the Dow which gained 0.11%. The Nasdaq fell 0.24% and was the worst performer while the S&P dropped 0.15%.
The sectors were evenly split on the day with five moving higher and five moving lower.Healthcare stocks led the way with the sector moving up 0.61%.
The utilities sector turned in the second best performance with a gain of 0.20%.
The tech sector took the biggest loss at 0.45% and it was followed closely by the materials sector which declined 0.41%.
My scans turned negative once again on Tuesday.
There were 56 names on the bearish list and 21 names on the bullish side.
The barometer moved back in to negative territory once these results were added in to the equation. The final reading came in at -8.9, down from 5.6 on Monday.
Today’s trade idea is a different one in that the company didn’t appear on my bearish scan or my bullish scan. The company is Taiwan Semiconductor (NYSE: TSM) and the company is due to release earnings on Thursday morning. I wrote a cautious article on Taiwan Semi for Seeking Alpha the other day and the article got quite a few comments.
This isn’t the first time this has happened when I have written a cautious article. Almost all of the comments questioned my analysis and my cautious stance. When this has happened in the past, the stock’s that I was cautious on fell sharply in the months that followed. The company’s fundamental ratings aren’t terrible with an EPS rating of 64 and an SMR rating of a B. However, the stock has jumped over 65% since its May low.
The huge rally has put the stock deeply in overbought territory and I get the feeling the stock has outperformed the company. I also noted in my article that the sentiment toward the company was skewed to the bullish side and that means expectations for earnings are running high. The reader comments pretty much confirmed my opinion on the sentiment. Because of how overbought the stock is and how bullish investors seem to be, I expect Taiwan Semiconductor to fall in the coming weeks.
Buy to open the February week 2 62-strike puts on TSM at $2.90 or better. These options expire on February 14. In order for these options to double the stock will need to drop to $56.20. This trade idea is more aggressive than usual so you will want to understand the risk of making a trade ahead of earnings. Based on what has happened with other stocks where I have seen this type of group behavior, I believe the stock is headed lower. I suggest a target gain of 100%. I would suggest a stop at $62, but I would also not react immediately after the open on Thursday.
— Rick Pendergraft
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