Warren Buffett Uses Stealth to Take a Big Stake in Taiwan Semiconductor

Taiwan Semiconductor Manufacturing Co. (TSM) is in the news here on Tuesday as the financial media learns that Warren Buffett’s Berkshire Hathaway (BRK.A)   (BRK.B) has taken a $4 billion stake in the semiconductor giant. TSM’s stock price is up sharply in pre-market trading, so let’s check out the charts and indicators while the fundamental analysts weigh in whether the purchase is too soon.

In this daily bar chart of TSM, below, we can see the price action through Monday’s close. We have to imagine the stock trading up about 10% in the pre-market. Prices declined sharply from a zenith back in January. A low can be seen in late October and early November. Prices have pushed up above the declining 50-day moving average line and the bearish 200-day moving average line intersects up around $90. The trading volume increased from early September and was heavy in October and that may have been the best opportunity for the Oracle of Omaha to execute his purchases without raising the attention of Wall Street.

The daily On-Balance-Volume (OBV) has been weak into early November and only managed a minor upturn. This is the sign of a really good trading desk — they were able to buy a huge position on weakness and not push up the price and attract unwanted attention. The Moving Average Convergence Divergence (MACD) oscillator has improved in recent weeks and is close to crossing above the zero line for an outright buy signal.

In this weekly Japanese candlestick chart of TSM, below, we can see a bottom reversal pattern in October. The large white (bullish) real body in early November is the belated signal of aggressive buying after a spinning top and a doji.
The weekly OBV line shows a two-year decline, so this purchase by Buffett could well be early in a potential reversal. The MACD oscillator is poised for a cover shorts buy signal.
In this daily Point and Figure chart of TSM, below, we can see a price target in the $103 area.
In this weekly Point and Figure chart of TSM, below, we can see a price target in the $102 area.
Bottom-line strategy: TSM has made a low but a bottom pattern is yet to come. V bottoms are real, but I like to see other patterns. The Buffett news is going to attract a lot of attention and followers. TSM is likely to gap higher, but a pullback or correction is going to unfold at some point in time. This pullback is when I want to consider being a buyer. Meanwhile, I will pass the chips.

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