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How Taiwan Semi Can Continue Rally After Mixed Earnings Report

Taiwan Semiconductor shares are rallying after a mixed earnings report on Thursday morning. Here's how it can go higher.

Taiwan Semiconductor  (TSM) - Get Free Report shares reported earnings on an interesting day: the monthly inflation report was issued this morning.

The in-line consumer-price index report at last check had markets unsure on direction, but for Taiwan Semiconductor, there hasn’t been any wavering.

The shares opened higher by 4% on Thursday and at last check were more than 6% higher. The moves came after a mixed earnings report.

Revenue grew 27% year over year to $19.93 billion but missed analysts’ estimates by almost $1 billion. Earnings of $1.82 a share beat expectations by 5 cents.

It has not been an easy ride with chip stocks, including Taiwan Semi.

The stock saw a peak-to-trough loss of 59%, but it bottomed in late October and since has been trading better. With today’s rally, the shares are up more than 45% from the low as the stock hit its highest level since August.

The post-earnings response is like a cherry on top for Warren Buffett, whose Berkshire Hathaway  (BRK.B) - Get Free Report  (BRK.A) - Get Free Report built a rather sizable stake in the company in the second half of 2022.

Trading Taiwan Semiconductor Stock

Weekly chart of Taiwan Semiconductor stock.

Weekly chart of Taiwan Semiconductor stock.

Taiwan Semiconductor stock made a powerful three-week rally off the October low but ran into resistance from the 200-week moving average and the prior breakout level near $83.50.

This is classic price action, where prior support turned into resistance, and illustrates how stocks tend to have a sort of memory around certain key levels.

On the ensuing pullback, Taiwan Semiconductor stock put in a higher low, a bullish technical development. With the post-earnings reaction, the shares are now pushing through its fourth-quarter resistance.

From here the bulls will look to press Taiwan Semi up to the 50-week moving average. On a slightly higher push, the 38.2% retracement is in play near $92.

Keep in mind: The $90 to $92 area was support in the first half of the year but resistance in the second half. If the shares can clear this zone, it opens up the $100 to $102 area, then the $107.50 to $110 zone.

On the downside, it’s pretty simple. From a technical perspective, Taiwan Semiconductor stock would remain quite bullish if it can stay above the $83.50 area.

That keeps it above all its daily moving averages and several key weekly moving averages, as well as several notable levels on the chart.

Below $83.50 makes things a little trickier and we’d have to reevaluate Taiwan Semi at that time.