Big Gains When Taiwan Semiconductor Catches Up

Last week I was cautiously bullish, and given how the market reacted to the slightly less awful Employment Situation Report from the Bureau of Labor Statistics, I think another bullish call option is the best trade for today.

The semiconductor industry suffered (just like the rest of the market) when companies like Apple, Inc. (NASDAQ:AAPL) pulled guidance from the year because of the COVID-19 pandemic. But now these stocks are starting to recover, and I think Taiwan Semiconductor (NYSE:TSM) is a good stock to target with a bullish position.

TSM in the U.S.

Investors have gotten nervous about the reopening economy. Several countries that seemed to have the COVID-19 outbreak under control experienced minor spikes, and that could mean we’re in for the same thing.

Index futures are slightly lower as a result.

And because the rhetoric between the White House and Beijing has intensified recently, some are concerned about the possibility of another trade war between the U.S. and China.

That would be bad for the market, and bad for TSM, which supplies Huawei, the Chinese tech giant, with chips.

But TSM and many other companies have been talking with the U.S. government about opening U.S. factories.

Nothing has been decided, but those talks may be one reason TSM has had a strong recovery.

With a factory in the U.S., it would be less vulnerable to tariffs on goods produced in China.

Underperforming its Sector

Since the crash in March, TSM has been trailing slightly behind the Philadelphia Semiconductor Index (PHLX). The PHLX is up by over 30%, while TSM is only up by 20%.

But if you look at the chart below, you can see that TSM has already risen above its 50-day and 200-day moving averages (MAs). In fact, the stock tapped its 50-day MA as support recently.

Daily Chart of Taiwan Semiconductor Manufacturing Company Limited (TSM) — Chart Source: TradingView

TSM is already in a bullish mode, and I think it could catch up to the rest of its sector soon. Since the stock is down slightly in premarket trading, readers have an excellent chance to take a bullish position.

Buy to open the Taiwan Semiconductor (TSM) July 17th $55 Calls (TSM200717C00055000) at $1.95 or lower.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

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