One of the AI plays we’ve been following this year is NXP Semiconductors (NXPI)…
Like high-profile stocks in this space – such as Nvidia (NVDA) and Advanced Micro Devices (AMD) – NXPI has been riding the huge flow of money trying to capture the AI boom.
But NXPI’s rally was initially more subdued… Only in May did its rally really start to take off.
That rally is recently starting to soften despite a relatively upbeat earnings report last week. So today it’s time to see what’s coming next…
False Assumptions
On the chart of NXPI below, you can see where it bottomed out in October last year (‘A’). That trough marked a 45% fall from its late-2021 all-time high:
NXP Semiconductors (NXPI)
Source: eSignal
NXPI began to build a base and rally as the Relative Strength Index (RSI) rose higher (left red line) from oversold territory.
As you can see, NXPI then began to develop into a classic uptrend with a series of higher lows (‘C’ and ‘E’) and higher highs (‘B’ and ‘D’).
But NXPI’s retracement from ‘D’ to ‘E’ took about three times longer than the pullback from ‘B’ to ‘C.’ The RSI skirted around support/resistance.
By the time that retracement finished at ‘E,’ NXPI was trading barely a couple of dollars above its January low.
At the time, it would have been easy to assume that NXPI’s rally was dead.
Yet as we saw when we checked in on NXPI back on May 24 (left red arrow), fresh momentum (right red line) was starting to push NXPI higher.
Take another look:
NXP Semiconductors (NXPI)
Source: eSignal
The next leg of NXPI’s rally developed in May. The RSI broke through resistance (green line) and into the upper half of its range, where it has remained throughout this current leg of NXPI’s rally.
You can gauge the rally’s strength by the rate that the 10-day Moving Average (MA, red line) broke above the 50-day MA (blue line) and accelerated higher.
When we checked in on NXPI again (right red arrow) last month, that rally was still tracking strongly. But the RSI was testing an overbought level.
And it was in danger of a reversal…
Although NXPI did briefly retrace, fresh buying momentum again pushed NXPI higher.
Now NXPI is trading within around 5% of its all-time high. So what am I looking for next?
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Growing Divergence
As you can see on the chart, this past month, NXPI’s rally is starting to flatten out.
Although NXPI surged higher after its mid-July dip, it is struggling to maintain upward momentum.
That’s why the direction of the RSI will be key over the coming week (orange circle).
If the RSI locks in a lower high and continues down, that will show a growing divergence between the stock price (upper orange line) and the RSI… meaning that NXPI could be due for a fall.
We’d then look for our two MAs to move closer together as further evidence of a developing down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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