Texas Instruments Incorporated (TXN) is a semiconductor giant slated to report earnings after the closing bell on Tuesday, July 23, with the stock trading just below its all-time intraday high of $120.75 set in January 2018.
Texas Instruments shares closed the first half of 2019 on June 28 at $114.76, which became a key input to my proprietary analytics. Left over from the first half of the year is the annual value level at $96.08, which was crossed several times as a buying opportunity between Jan. 9 and Jan. 23. The risky level for the second half of 2019 is $127.62. The risky level for July is $120.18. The third quarter risky level is $123.20.
The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 21, when the stock closed at $112.32. Fundamentally, Texas Instruments stock is overvalued, with a P/E ratio of 21.56 and a dividend yield of 2.63%, according to Macrotrends.
Analysts expect Texas Instruments to post earnings per share of $1.21 when it reports results after closing bell on Tuesday, July 23, and the company beat estimates for the past three quarters. The key to earnings will be demand for computer chips used in the automobile and other industrial industries. Higher-margin components and growing production demand could be a positive offset.
The daily chart for Texas Instruments
The daily chart for Texas Instruments shows the formation of a "golden cross" on March 25, when the 50-day simple moving average rose above the 200-day simple moving average, indicating 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 close of $114.76 on June 28 was an important input to my proprietary analytics. The monthly, quarterly and semiannual risky levels are $120.18, $123.20, and $127.62, respectively. The annual value level lags at $96.08.
The weekly chart for Texas Instruments
The weekly chart for Texas Instruments is positive, with the stock above its five-week modified moving average of $114.76. The stock is also above its 200-week simple moving average, or "reversion to the mean," at $86.21. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 77.65 this week, up from 71.54 on July 19.
Trading strategy: Buy Texas Instruments shares on weakness to the 50-day and 200-day simple moving averages at $111.63 and $105.02, respectively, and reduce holdings on strength to the monthly, quarterly, and annual risky levels at $120.18, $123.20, and $127.62, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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.