Should You Buy TSMC (TSM) After Golden Cross?

Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is looking like an interesting pick from a technical perspective, as the company reached a key level of support. Recently, TSM's 50-day simple moving average crossed above its 200-day simple moving average, known as a "golden cross."

A golden cross is a technical chart pattern that can signify a potential bullish breakout. It's formed from a crossover involving a security's short-term moving average breaking above a longer-term moving average, with the most common moving averages being the 50-day and the 200-day, since bigger time periods tend to form stronger breakouts.

Golden crosses have three key stages that investors look out for. It starts with a downtrend in a stock's price that eventually bottoms out, followed by the stock's shorter moving average crossing over its longer moving average and triggering a trend reversal. The final stage is when a stock continues the upward climb to higher prices.

A golden cross is the opposite of a death cross, another technical event that indicates bearish price movement may be on the horizon.

TSM has rallied 13.6% over the past four weeks, and the company is a #3 (Hold) on the Zacks Rank at the moment. This combination indicates TSM could be poised for a breakout.

The bullish case only gets stronger once investors take into account TSM's positive earnings outlook for the current quarter. There have been 2 upwards revisions compared to none lower over the past 60 days, and the Zacks Consensus Estimate has moved up as well.

Investors should think about putting TSM on their watchlist given the ultra-important technical indicator and positive move in earnings estimates.

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This article originally published on Zacks Investment Research (zacks.com).

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