Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) is being affected by both the strength in Dollar against the Emerging Market currencies and weakness in the Chinese economy. Most of the fund managers around the globe are not very optimistic about the Chinese economy showing a strong bounce this year, which may affect Asia as a whole. In that context, the Chinese industrial company profits sliding by 4.2% in the first two months of the year do not look very promising and the business of Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) is feeling the heat. The smartphone chip demand can be affected by a stronger Dollar to a great extent, according to at least four analysts. Naturally, the stock has just seen the longest losing streak in two years with 5 consecutive sessions in the red.
The volume has spiked in the last two sessions with the Thursday volume jumping at 36 million against the average of 12 million. Perhaps that suggests an attempt to accumulate the stock after the sharp selloff, but the immediate future doesn’t look too good for the stock.
Technically, all the price action in the last 5 years is nicely contained in a rising channel and the upper boundary of that has just been tested by the price in the month of February. The last two times the stock hit the upper boundary, corrections were seen in the next few months. If the channel is not broken on the upside immediately, a very similar correction towards $20-$21 can be expected in the next few months.
In the last 5 years, 3 corrections of equal magnitude, $ 4 can be seen. If the same pattern continues, then the current drop may find the final bottom around $21 and that would be the safest place to get into the stock.