The chip shortage coupled with the fact that its has one of the biggest manufacturing capacities in the entire industry made Taiwan Semiconductor a phenomenal stock to own in recent years. Less than a year after it dipped below $43 a share in March, 2020, TSM had already exceeded $142. After spending most of 2021 hovering around $120, the price reached a new record of $145 in January, 2022.
But things have since taken a turn for the worse. The stock is currently trading just under the $100 mark, down ~32% from its all-time high. Some of the losses can be attributed to high valuation. The company’s recently announced product delays certainly play a role, as well. These, however, are just after-the-fact explanations telling us nothing about the future. Elliott Wave analysis, on the other hand, might just give us a hint about it. Take a look.
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The 4-hour chart of Taiwan Semiconductor reveals that the decline from $145 looks like a five-wave impulse labeled 1-2-3-4-5. Impulses only develop in the direction of the larger pattern. This means TSM stock has most likely already fallen into the bears’ paws. A corrective recovery can now be expected, but once it is over, levels much lower than $100 a share would make sense.
So instead of “buying the dip” in one of the biggest chip companies in the world, investors would be better off watching from a distance. Just as Netflix recently looked like a bargain at $350 and is now down to $220, the bears might just be getting started in Taiwan Semiconductor stock.
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