Chart Signals Flesh Red For Taiwan Semiconductor

Taiwan Semiconductor Manufacturer (TSM), a key player in the global semiconductor industry, has just reported excellent results. TSM is an incredible business with an unassailable competitive advantage, giving it high operating margins. Growth is driven by steadily climbing capital expenditure to build new fabs, which are increasingly located outside Taiwan. It is a high-quality investment likely to deliver growth.

Nevertheless, the chart does not look good. Coppock is falling, and the moving averages are rolling over. The long-term chart suggests that buying when Coppock turns higher (a blue smiley) and selling when it turns down (a red smiley) captures the gains while removing much of the risk of holding the shares.

The conclusion is that TSM has become a risky investment until Coppock turns higher.

TSM has double significance: as a bellwether stock in the semiconductor industry and as a gauge of the state of relations between China and the US. China might be reluctant to try to take control of Taiwan if it had a great deal to lose from trading with the US. But with tariff barriers at 145pc, it might feel that now is the moment.

If China takes over Taiwan with a massive show of force, what can the US do that it has not already done, and TSM is a glittering prize? It is as central to the global semiconductor industry as Nvidia, sitting at the heart of the technology revolution.

China may also look at Russia and what Putin is getting away with. He takes Crimea with barely a cheep from the West. No wonder he thought he would try his luck with Ukraine, and he may have surprising success with that one, too. This is a world in which bad guys win, like the ghastly Putin in Russia, Erdogan in Turkey, Xi Jinping in China, Mohammed Bin Salman in Saudi Arabia, and, dare I say it, Donald Trump in America.

Strategy – Wall Street teeters on the brink

I know I have been going backwards and forwards on where US stock markets might be going in a classic juxtaposition of great fundamentals and deteriorating charts, but there are grounds for serious concern. This market could break badly lower in a vicious circle of liquidation culminating in significant bankruptcies.

Based on Coppock, the S&P 500 lost momentum in January 2025 and has been heading lower ever since. The blue line marks zero, and Coppock has touched or dipped below it five times in the last 30 years. Each of those dips has led to spectacular buy signals.

All we can say at the moment is that all the indicators I follow, trend lines, moving averages and Coppock are flashing red. What you never know with Coppock is whether a falling curve will lead to a crash or a prolonged period of turbulent sideways trading. But there is a risk of a crash.

In January 2025, US margin debt hit a record $937bn. In falling markets, margin debt leads to forced selling, which can lead to a spiral of asset liquidations. We must be close to triggering such a spiral now. Another piece of serious bad news could have a devastating impact.

Trump is engaged in a bitter struggle over interest rates with Jerome Powell, the chairman of the US Federal Reserve. If he wins that battle, for example by firing Powell, this would compromise the independence of the Fed, make Trump look like a dictator and have a massive impact on overseas confidence in the US bond market.

In a nutshell, it would be a crazy thing to do, and only a guy like Trump, who just does not get it, would contemplate doing such a thing. It would also raise the question of what this guy might do next. Confidence is fragile and once lost, it is hard to regain. Trump would do well to consider that, but he is just the dumb bull in a china shop who might not.