Did you miss Taiwan Semiconductor ($TSM) yesterday? Well, there’s always tomorrow. (September 16, 2020)


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Let’s look at Taiwan Semi ( NYSE: TSM ). Yesterday everybody wanted to look at this. This stock had a nice clean breakout, boom, out of this volatility squeeze, pretty close to the 50-day moving average, which gives it a little bit of room to run. But a lot of times what you see on these types of breakouts is, you will get a second chance.

It doesn’t necessarily have to happen the next day; it might happen 2 or 3 days later from much higher levels. I call these things volatility squeezes and my kind of measurement for them is, for lack of a better term, I just look at them in terms of 3 phases, Phase 1, 2, and 3.

First of all, it has to start with a squeeze, which is what we have here. It is a little gappy because it’s an ADR, but the stock breaks out from a squeeze on the first day, that’s Phase 1. The second phase would be when the initial breakout ends and then a pullback ensues. Now, we see this here so today I would say is Phase 2 but a lot of times you are not going to see it. You are going to see a move here, oh, that’s Phase 1. The second day, oh, Phase 1 is still intact. The third day; I’ll be darn, this is a heck of a move. The fourth day, okay, now that’s Phase 2.

And so then what you do is, you watch and you see, okay, I bought on the initial breakout, boom, I’m in. Oops, I didn’t buy on the initial breakout, now I am waiting for a chance to get in, that’s where we are right now. So if this is top here; what you are looking for is for this stock to pull down and preferably hold above 80.00. Maybe it will hold up here, which is fine. But I would say, if it’s below 80.00 then this entire breakout is really suspect.

You have to be really, really careful about getting too enthusiastic about it because you are not entitled to make money on every breakout. You are only entitled to make money on every breakout that you buy and that then continues to go higher.

So here we’ve got Phase 1, we’ve got Phase 2 that we are waiting for. And so your plan is to see how the stock trades right in here. And if it holds up, if it holds up within this circle and starts moving higher, then you want to be buying that stock. And you will be buying that stock with a stop just below $80.00. So that’s the way that I would be trading Taiwan Semi ( NYSE: TSM ).

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