Texas Instruments Stock Moves Higher Despite Downside Guidance

Texas Instruments Incorporated (TXN) gave a mild lift to the struggling chip sector on Wednesday evening, ticking higher after beating fourth quarter profit estimates and missing revenue expectations by nearly $300 million. Downside guidance for the first quarter failed to pull bears out of their caves, suggesting that the stock is oversold enough to float higher after a modest January bounce stalled last week at a six-week high.

However, shrinking revenue and fears of a cyclical top in the semiconductor sector may keep the majority of potential investors on the sidelines, looking for more potent growth opportunities into the new decade. In addition, constructive price action since the Dec. 26 low has failed to set off long-term buying signals, keeping the 2018 lows in play into the foreseeable future.

TXN Long-Term Chart (1994 – 2019)

The stock turned sharply higher after completing an 18-month correction at the end of 1994, lifting from a split-adjusted $4.30 into the 1997 high at $17.81. The rally paused during the Asian Contagion and resumed in the fourth quarter of 1998, entering a parabolic phase in sympathy with the internet bubble bull market. It topped out with other tech stocks in March 2000, posting a high at $100 that wasn't breached for 17 years.

A brutal bear market decline finally ended in October 2002 after the stock relinquished more than 85% of its value, giving way to a modest bounce that stalled in 2004 well below the .382 Fibonacci bear market retracement level. Rally attempts in 2005 and 2006 failed, while a 2007 breakout attracted little buying interest, ending less than six points above the 2004 peak and giving way to a downturn that ended 28 cents above the 2002 low after the 2008 economic collapse.

The subsequent bounce took more than four years to complete a round trip into the 2007 high, yielding an immediate breakout that posted impressive gains into 2015. The upside resumed in the third quarter of 2016, entering the most prolific period since the 1990s. The stock reached resistance at the 2000 high in December 20017 and broke out into the triple digits, but the uptick ended just one month later after posting an all-time high at $120.75. Sideways action carved a double top pattern into October and broke down, signaling a major failure at long-term resistance.

The monthly stochastics oscillator entered a sell cycle in 2018 and still hasn't flipped into a buy cycle or reached the oversold level, raising the odds for continued weakness into the second quarter. In addition, the decline hasn't reached the 50-month exponential moving average (EMA), unlike many stocks that sold off into year end. Taken together with the failed breakout, selling pressure could easily resume and break the 2018 low, targeting stronger support in the low $80s.  

TXN Short-Term Chart (2015 – 2019)

The October breakdown found support at the .382 Fibonacci retracement level of the three-year uptrend, while the decline into December ended at the same level, setting up a potential double bottom reversal that requires a rally above the 200-day EMA and November high at $102.58 for confirmation. The bounce into January 2019 stalled less than three points under resistance, while the post-earnings uptick has reached $97. Limited buying power may encourage short sellers to reload positions, but they should remain cautious for now given the positive post-news reaction. 

The on-balance volume (OBV) accumulation-distribution indicator held up well into October and broke down with price, dropping to the lowest low since December 2017. It has been ticking higher for nearly three months, indicating healthy bottom fishing and value hunting that could support a long-lasting bottom. However, it's hard to ignore broadly bearish technicals, suggesting caution until price action mounts the triple digits and sets off long-term buying signals.

The Bottom Line

Texas Instruments stock is gaining ground after a mixed earnings report but still hasn't shaken off major 2018 technical damage.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.