Texas Instruments Beats Earnings, Stock Trades Lower on Weak Guidance

Texas Instruments Incorporated (TXN) reported an earnings per share (EPS) beat after the close on Oct. 22 but missed on revenue and offered disappointing guidance. The stock was trading between its semiannual pivot at $127.62 and its quarterly risky level at $132.51 after setting its all-time intraday high of $132.20 on Oct. 15. Texas Instruments gapped below $127.62 on Oct. 23 and nearly tested its 200-day simple moving average at $115.06.

The stock closed last week at $120.51, up 27.5% year to date and in bull market territory at 37.4% above its Dec. 26 low of $87.70. The stock is now 8.8% below its all-time intraday high of $132.20 set on Oct. 15. Texas Instruments has a neutral fundamental profile with a P/E ratio of 22.47 and a dividend yield of 2.60%, according to Macrotrends. The stock has now beaten or matched EPS estimates for 17 consecutive quarters.

Texas Instruments appears to believe that the recovery in the semiconductor industry has been pushed into 2020. The company indicated that its analog revenue fell 8% while embedded processing applications fell 19% from a year ago. This notion was challenged later in the week as the Philadelphia Semiconductor Index (SOX) set an all-time intraday high on Friday, Oct. 25.

The daily chart for Texas Instruments

The daily chart for Texas Instruments shows that the stock has been above a "golden cross" since March 25, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. When the stock traded to its Dec. 26 low of $87.70 and closed that day at $97.98, a positive "key reversal" occurred, as this close was above its Dec. 24 high of $90.55. The annual value level at $96.08 was the staging level between Jan. 8 and Jan. 23 as a buying opportunity.

The close of $114.76 on June 28 was input to my proprietary analytics, and the semiannual pivot at $127.62 failed to hold following the recent earnings report. This level had been a magnet since July 24. The close of $129.24 on Sep. 30 was also input to my analytics, and its fourth quarter risky level at $132.51 could not be tested at the Oct. 15 high of $132.20.

The weekly chart for Texas Instruments

The weekly chart for Texas Instruments ended last week negative, with the stock below its five-week modified moving average of $125.82. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $90.79. The 12 x 3 x 3 weekly slow stochastic reading ended last week declining to 77.91, falling below the overbought threshold of 80.00. 

Trading strategy: Buy Texas Instruments shares on weakness to the 200-day simple moving average at $115.06 and reduce holdings on strength to the semiannual pivot at $127.62.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new semiannual levels. The semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October, as monthly levels change at the end of each month.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.