Texas Instruments Firms At Trendline Support

02/08/06 07:40:38 AM

by Arthur Hill

Texas Instruments fell hard in January, but a bullish candlestick reversal at support argues for a bounce.

Security: TXN
Position: Hold

Three items confirm support for Texas Instruments (TXN) just below 30. First, there is the trendline extending up from August 2004. This trendline cuts through 30 in February and acts as support. Second, broken resistance from the March 2005 highs turns into support around 28. Third, the October reversal marks support around 28. These three items converge around 28-30 in February to mark a support zone (Figure 1).

FIGURE 1: TEXAS INSTRUMENTS, WEEKLY. TXN appears to mark a support zone going into February 2006.

Graphic provided by: MetaStock.

In addition to support, the stock became oversold at the end of January (Figure 2). The stock declined from 35 to 29 (a drop of 20%) in two weeks, and this alone is enough to justify an oversold situation. I can also apply a momentum oscillator to confirm this. The relative strength index (RSI) moved below 30 to become oversold for the first time since October. The combination of medium-term oversold (seen in the daily chart) and long-term support (seen in the weekly chart) increase the odds of a bounce.

FIGURE 2: TEXAS INSTRUMENTS, DAILY. TXN formed a piercing pattern in early February and broke through the trendline (seen here in magenta).

Graphic provided by: MetaStock.

Homing in further on the daily chart reveals a candlestick reversal and trendline break in early February. TXN formed a piercing pattern on February 1 and broke the magenta trendline, extending down from January 12 with some follow-through over the last few days. There is still resistance around 31 from the January 27th high, and I would like to see a move above this level to solidify a short-term bullish reversal.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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OVERBOUGHT OVERSOLD

Texas Instruments Firms At Trendline Support

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