2 Warning Signs for Texas Instruments Stock Bulls

Short interest recently bottomed on TXN stock

Oct 23, 2017 at 1:57 PM
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Nvidia isn't the only semiconductor stock on analysts' radar. Just this morning, RBC upped its price target on Texas Instruments Incorporated (NASDAQ:TXN) to $100 from $96, helping the shares earlier hit a 17-year high of $96.74. The equity is now up almost 32% in 2017, and is pacing for a seventh straight positive weekly finish. But while options traders appear bullish ahead of the company's earnings release tomorrow afternoon, there's still room for more analysts to get behind TXN stock.

As it stands now, 11 of 24 brokerage firms still have tepid "hold" ratings on the security. Even more surprising, its average 12-month price target sits down at $90.17. A strong showing in the earnings booth tomorrow could certainly draw a round of upgrades and/or price-target increases.

Meanwhile, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 1.24, good enough to rank in the 73rd annual percentile. This shows call buying has been very popular in recent weeks, relative to put buying.

Call volume is accelerated today, too, running at seven times the expected pace. However, Trade-Alert suggests this is mostly due to one trader who bought to close more than 9,000 November 95 calls and sold to open 8,200 November 102 calls, adjusting an overwrite following the stock's strong rise on the charts.

Looking back, Texas Instruments has had a mixed history of post-earnings performances, gaining in the session after reports five of the past eight quarters. Overall, the shares have averaged a single-day, post-earnings swing of 3.6% -- though this time the options market is pricing in a slightly larger move of 4.7%.

While TXN's price performance has been impressive, there are two things to consider before going long. First of all, the equity's rapid rise on the charts was likely partially fueled by a months' long decline in short interest, which hit its lowest point on record in July, and has been on the rise since. With this source of buying power mostly exhausted, it could be tougher for the stock to keep pushing higher.

Also, its 14-day Relative Strength Index (RSI) now stands above 80 -- well into overbought territory. This often suggests a stock is due for a short-term pullback. Of course, these apparently bearish indicators could prove to be inconsequential should the chipmaker report impressive earnings.

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