Texas Instruments Is Headed for a Tumble

Shares of Texas Instruments (TXN) - Get Report are on the brink of a deep breakdown. The stock has been trading in a narrow range all month after taking an ugly hit in late April. With overhead pressure building and an ominous-looking weekly downside reversal in place, Texas Instruments is in trouble.

In the near term, bullish investors should expect much lower entry opportunities to develop soon.

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As last month came to a close, Texas Instruments was extending a monster run off the January lows. The day before it reported its first-quarter results, the stock had gained over 27% over the previous three months. Following Texas Instruments' earnings report on the afternoon of April 27, the stock appeared ready to power past heavy resistance near its 2015 peak of $60. By the closing bell the next day, the opposite had happened. Texas Instruments fell over 2% as volume spiked, leaving behind a very damaging key downside reversal. The selling continued the next day, driving the stock to another 2.8% loss. When the dust had settled as the week came to an end, Texas Instruments had left behind a major weekly downside reversal.

Texas Instruments' consolidation pattern this month will likely prove to be a bearish flag. Once the new May lows are reached, a new leg lower will be confirmed. Texas Instruments investors should keep a close eye on the $56 area. A clear take out of this key level would mark a fresh May low and open up the downside. The initial downside target is the January peak near $54.50. Just below is the lower band of this important support zone, which includes the February low as well as the 200-day moving average. A hold near this level would provide investors with a much lower-risk entry opportunity than current levels.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long TXN.