Is Taiwan Semiconductor Setting Up for a Big Move? – November 2, 2021

Taiwan Semiconductor Manufacturing Company (TSM) is the world’s largest dedicated chip foundry, with over 58% market share. Many leading fabless chip makers — including Qualcomm (QCOM) and Advanced Micro Devices (AMD) rely on TSM to manufacture their smallest and most powerful chips.

The company has been benefiting from a strong appetite for new chips. As the global chip shortage is expected to continue for some time, that appetite should continue to grow. In fact, the company recently stated that its capacity is expected to remain tight through next year due to this demand.

As of the end of September, the company had $30.6 billion in cash compared with $4.3 billion in short-term debt. In the most recent quarter, net income was up 14.8% year over year. Analysts expect earnings to jump 14.4% in the current quarter.

The stock looks a bit overvalued with a forward P/E of 24.21. TSM has shown mixed performance since early March, as shown in the chart below.

Take a look at the 1-year chart of TSM below with added notations:

TSM was rallying strongly into 2021, ultimately peaking in February. The stock then fell into a wide trading range between the $108 support (green) and a $125 resistance (red).

At some stage, TSM will bust out of the range, and that break will likely dictate the stock’s next big move.A long trade could be entered on a break of the $125 resistance level, with a protective stop set underneath the point of entry. An ideal short trade could be made on a break below the $108 support level with a protective stop placed above the entry level.

TSM shares were trading at $113.94 per share on Tuesday morning, down $0.18 (-0.16%). Year-to-date, TSM has gained 5.46%, versus a 24.29% rise in the benchmark S&P 500 index during the same period.

Author: Christian Tharp