Shares of semiconductors and electronics company Texas Instruments Incorporated (NASDAQ:TXN) lost about 2% on Thursday following the company’s latest earnings report. This bearish reversal for TXN stock is taking place at a critical technical spot, and may offer active investors and traders a chance to play Texas Instruments from the short side for cash flow.
And then you can buy it again lower for a medium-term trade.
For its fiscal first quarter, Texas Instruments recorded revenues of $3.01 billion and earnings of 65 cents per share, both of which beat the consensus estimates. The company’s raised guidance was in line with what analysts were hoping for.
All in all, no enormous surprises.
Apple Inc. (NASDAQ:AAPL) is a large customer of Texas Instruments — so much so, in fact, that in 2015 more than 10% of the company’s revenue came from Apple. So, when Carl Icahn announced he no longer has a position in Apple … well, that didn’t help TXN stock.
TXN Stock Charts
On the multiyear weekly chart, we see that TXN stock has largely been stuck in a very wide trading range for the past thirteen months or so. This w-shaped pattern has very-well-defined technical resistance around the high $50s, which I marked with the blue bubbles.
The sharp rally off the January lows earlier this week once again moved TXN stock back to this line of resistance. While this big consolidation phase is healthy for TXN stock through the longer-term lens, it is also unlikely that in the near-term, the stock will be able to gain enough momentum for a sustainable breakout past resistance.
The bulls are pointing to momentum indicators which on the weekly chart are not yet dramatically overbought, to which I say that this is a game of time-frames.
Speaking of time-frames, let’s zoom in on the daily chart of TXN stock where we see that the past two earnings reports have coincided with important near to medium-term turning points in the stock.
Last October, TXN stock rallied after its earnings report but shortly thereafter lost steam and began to roll over. January’s earnings report confirmed the bullish reversal in the stock just two weeks prior. And Wednesday’s earnings report took place right as the stock had once again reached the big line of resistance and, judging by the price action on Thursday, the stock may now be settling into a consolidation period again.
TXN stock on Thursday rallied intraday, marginally peeked above Wednesday’s highs but the afternoon selling spree led the stock to close near the day’s lows, resulting in a bearish engulfing candle. The bearish reversal is not yet confirmed however as the stock has yet to show us a follow-through selling day as well as a close below its yellow 21-day simple moving average, which had so far held as support since February.
A daily close below the $58 area in particular could get this stock to mean-revert back into the mid-to-low $50s again, allowing active traders to short the stock or buy put options. In the mid-to-low $50s however TXN stock through the longer-term lens may become a buy once more.
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