Possible post-earnings bounce levels for Taiwan SemiconductorsWith industry-leading technology and low exposure to China tariffs, Taiwan Semiconductor is poised to thrive in the trade war era. The stock soared to overbought levels ahead of earnings, then blew away analyst estimates on its earnings report. However, the stock has been dropping after earnings because the price had gotten too high, too fast. Its current P/E of about 24 is about average for the semiconductor sector, but it's well above TSM's five-year average of 16. TSM is bound to bounce at some point and resume its uptrend; the question is when.
If this were any other other sector, I'd expect to plummet right through our first support level. However, semiconductors have absolutely defied gravity lately, so it's fully possible that the first support will give us our bounce. Here's one possible scenario, in which we get a mini-bounce from the first support and then a stronger bounce from the first trend line:
Here's another likely scenario in which we fall to the second trend line and bounce from there:
Even if we do break the second trend line, we've got a nice, strong volume node right underneath it at 44.17 to act as a secondary support. Best case scenario for buyers is that we head all the way down to about 42, where another strong volume node is located.
My strategy for playing this is to buy at the first trend line, with a stop loss right beneath it in case the stock breaks down further. If it does, then re-enter at the second trend line and just hold, with no stop loss. If it falls further to 42, triple the size of my position. As always, this is just an idea as to how the market will move and is not intended as investment advice. Happy trading!
