In my last report regarding Texas Instruments Incorporated (NASDAQ:TXN) stock, I outlined levels of support because there were uncertainties with regards to the U.S. presidential election and an upcoming Federal Reserve interest rate hike.
The uncertainties surrounding the election have come and gone, and the fears surrounding a Donald Trump win were unfounded, as the media had us believe that the markets would crash under such a circumstance. They couldn’t have been more wrong, as the complete opposite occurred. The market “crashed” in an upward direction, as indices are now at new all-time highs.
The uncertainties surrounding the looming rate hike have dissipated, as it is almost a certainty that the Fed will hike rates. As a result, the markets have fully priced in a 25 basis point hike.
In all this bullish euphoria that his gripped the stock market, TXN stock has made new highs and the door has opened to test the all-time high at $79.45. This level was set in March 2000, and this is the price level to watch in Texas Instruments stock.
The bullish trend in Texas Instruments stock began in November of last year, as the following chart illustrates.
Chart courtesy of StockCharts.com
The bullish tail first began to develop in November 2015 when TXN stock generated a golden cross. A golden cross is a bullish signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). Traders use this signal to confirm that a bull market is on the horizon.
The bullish tailwinds started to pick up steam when the moving averages that created a golden cross began to converge and a death cross was looming. A death cross is the complete opposite of a golden cross, and the implications are bearish.
The fact that the death cross failed to generate is what is referred to as a failed or averted signal. These signals are not to be taken with a grain of salt. Such instances have proved to be tremendously powerful indicators because it takes quite of a bit of flexing from the bullish camp to avert or cause a signal to fail. As a result, it is not uncommon for the trend to accelerate in the direction of the predominant trend.
It was not until the death cross was averted that TXN stock really began to trend higher.
In July 2016, Texas Instruments stock gapped higher and began trading within a range. This trading range is illustrated below.
Chart courtesy of StockCharts.com
Since late July, TXN stock has been trading within a defined range. Support stands at $65.80, and resistance stands at $71.80. This range spans approximately $6.00.
In my previous report on Texas Instruments stock, I was worried that support defined by this range would give. I was right about one thing: the range did give, as Texas Instruments stock has just broken out of this range to the upside. This event is marked as breakout on the chart above.
There is one level of resistance that stands between TXN stock and the moon, and that level is the March 2000 dotcom bubble high of $79.45.
Breaking through this level to make a new all-time high is an impressive feat and tremendously bullish. It becomes the point in time when every bullish investor is showing a profit on their investment, and every bearish investor is holding a loss. It is this point at which a short-covering rally fueled by bullish buying pressure can send a stock surging to irrational heights.
Under such circumstances, stocks have a propensity to overshoot any rational level of fundamental evaluation, or a “moon shot,” as I refer to it.
Under normal conditions, I would assume that the all-time high will cause significant resistance for TXN stock, and that it would not break through it on the first attempt. That is something I will have to reevaluate when Texas Instruments stock tests this level, because the NASDAQ is currently trading above its dotcom bubble high, indicating that bullish tailwinds are blowing in full force.
Bottom Line on Texas Instruments Stock
I am bullish on Texas Instruments stock since the uncertainties that plagued the markets this fall have dissipated. TXN stock is set to test the all-time high at $79.45, and successfully breaking above this level will open the door to tremendous heights.