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Xilinx (XLNX) designs, develops, and markets programmable logic solutions. Essentially it is a specialized chip maker offering advanced integrated circuits in the form of programmable logic devices (PLDs). These PLDs have been in huge demand for a long while now and the demand doesn’t seem to be subsiding as of yet. The market is in a trading range and XLNX is a good example of a strong stock that keeps offering long entries. Form that perspective, it is a nice read on how to trade trading range in a long only type stock and thus we take a look at it.

The last time we took a look at XLNX (link to late Feb article on RealMoney) the long term chart showed resistance at $27 and again at $29. Since then, XLNX has worked sideways and built up further strength to finally attack the five-year highs. If we look at the monthly chart, you can see that volume at the top is roughly 128M and it is being attacked on much higher volume. Sure it can pull back on earnings or if the general market does, but the strength being exhibited on this current push higher as evidenced by volume expansion is telling us that it will probably take out the high and then shoot for the round target high of $30-$31.

Note that if the highs are taken out on a monthly basis, volume will be sufficient to create a confirmed bullish trend.

Moving to the weekly chart showing us the intermediate term time frame, XLNX has shown the very constructive pattern of floor building over longer periods of time. Floor building is important as it allows a stock to digest gains and provide for further future gains. Floor building also provides excellent opportunity to gain entry into a strong stock like XLNX as it works higher then falls back. Each time it comes back, it provides ample opportunity to get back in or to add to positions that were sold at higher price points.

Looking at the chart, XLNX took about 10 months to build out the second floor and is just now attempt to define a third higher floor. If the weekly price can hold for the week, then that would suggest a further move higher to define the tops of this third floor. The push to a higher floor usually starts with a high volume push and that is what we are seeing so far.

The risk to this entire scenario though is earnings and earnings hit tonight after the bell. Since I do not take large positions in front of earnings, I am long but in a conservative way. By having a foothold in the stock now - in front of earnings - the trade is to see if it pushes higher off earnings. If it does then the trade is to ride it to the longer term resistance zone. After a good run into the longer term targets, partial profits can be taken with the idea of reentry towards the bottom of this third floor. If, on the other hand, prices push lower off earnings, watch the volume on the push (on the daily chart shown below) and watch the $27 area. If that area holds then there is a good chance that a turn could be gamed at that price point. If not, then $25 has to be looked at as a potential entry point. Given the way it is trading into earnings though, XLNX looks to want to attack $30, not $25.

On the daily chart, it is showing a confirmed bullish trend and yesterday’s dip was bought. I would have rather seen lower volume on the retrace yesterday because yesterday’s behavior is an invitation to retest the bottom of the range, but the market seldom gives you everything you ask for. The key is to keep an eye on the larger picture and as I suggested in yesterday’s article, the financial and energy sectors look to want to try and trade higher, not lower right now.

XLNX is a chip name that I liked back at the beginning of the year and that I still like at the current levels. It has continued to work higher despite all the weakness in the general markets and has made higher highs as recently as a few sessions ago. Although earnings could put a dent in the rise, it’s hard to stay away from this name. A setback at these levels likely simply offers a better entry point. To know that you just have to measure how it comes back against what it is coming into.

With that in mind and until next time, just keep trading the charts!