This Underloved Chip Stock Could Surge To Record Highs

NXP Semiconductors stock tends to rally sharply after meeting up with its 40-day moving average

Managing Editor
Nov 8, 2017 at 3:07 PM
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Semiconductor stocks have been in focus, thanks to Broadcom's (AVGO) unsolicited buyout bid for Qualcomm (QCOM). The reports have brought QCOM's potential purchase of NXP Semiconductors NV (NASDAQ:NXPI) back into the spotlight. And while NXPI pulled back earlier this month, it ran straight into a trendline that has had bullish implications in the past. If history repeats itself, shares of NXPI could close in on fresh record highs over the next few weeks. Below, we will take a look at this potential buy signal, and examine how options traders have been lining up on the chip stock.

According to Schaeffer's Senior Quantitative Analyst Rocky White, NXP Semiconductors is now trading within one standard deviation of its 40-day moving average, after a lengthy stay above this trendline. Following the last 11 pullbacks to this moving average in the past three years, the tech stock was up an average 3.37% one month later, and was higher 82% of the time. A similar rally from the stock's current perch around $116.46 would have NXPI breaking through the $120 level, past the stock's Nov. 3 all-time high of $118.20.

Despite NXPI's solid streak of higher highs this year, analysts have been sitting on the sidelines ahead of Qualcomm's expected Dec. 31 acquisition of NXPI. All 14 of the brokerages covering the semiconductor stock rate it a tepid "hold."

In the options pits, short-term put buying are popular. This is according to the security's Schaeffer's put/call open interest ratio (SOIR) of 1.18, which is at its highest point since July 21 and ranks in the 79th percentile of its annual range.

Today, however, nearly 12,000 calls have traded -- 1.4 times the expected intraday pace, and volume on track for the 95th percentile of its annual range. In the lead is the weekly 11/10 117-strike call. Buy-to-open activity looks likely here, meaning NXPI options traders are betting on the chip stock to reach a record high by week's end, when the series expires.

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