Taiwan Semiconductor Manufacturing, a leading contract chipmaker for Apple and NVIDIA, experienced a remarkable intraday rally. The stock, after hitting $302, is now 42% above its 200-day moving average, suggesting potential overextension.

Since April, TSM’s stock has surged from $130, marking a 130% increase, driven largely by demand for AI chips. The rise has adhered to an ascending trendline, serving as consistent support during market fluctuations. This trendline is now a focal point for market analysis.

Recently, TSM’s stock retreated from a $310 peak to $280 before rebounding to $302, indicating potential overextension. A stock 42% above its 200-day average may signal a pullback. A 14-16% retracement could bring TSM to its trendline in the $250-$260 range, marking a normal market correction.

This pullback could present a favourable entry point for traders, offering a chance to capitalise on market movements. A successful retracement could lead to a test of the $310 highs, while a break below the trendline might indicate a shift in market dynamics.

Currently, TSM is performing strongly but faces potential over-extension. A 14-16% pullback could provide essential trading opportunities and insights into the stock’s next steps.

Given today’s massive reversal in TSM back to $302, we are looking at a stock that is incredibly overextended. Being 42% above its 200-day moving average is a rare condition that signals short-term exhaustion. The sharp swings between $280 and $310 in just the last few sessions show a battle is brewing between buyers and sellers.

This volatility is amplified by TSM’s upcoming Q3 earnings report, which is now confirmed for next week on October 21, 2025. We’re seeing implied volatility for the November options contracts spike above 65%, as the market is pricing in a major move following the results. This makes buying options expensive, but it creates opportunities for those who sell premium.

For traders anticipating a healthy pullback, selling cash-secured puts with a strike price around the $260 level could be an attractive strategy. This allows you to collect the high premium while defining your entry point at the ascending trendline support. If the stock drops to that level and gets assigned, you acquire shares at a technical level you wanted anyway.

Looking back at the major rally in 2021, we saw TSM get similarly stretched before it entered a two-month, 20% correction to cool off. History suggests that even in a powerful uptrend, pullbacks of this magnitude are normal and necessary. A retracement to the $250-$260 zone would align perfectly with this historical precedent.

On the other hand, if that key trendline breaks after earnings, the bullish structure is damaged. A decisive close below $250 on heavy volume would be a signal to consider buying long-dated puts. This would target a much deeper move toward the 200-day moving average, which currently sits far below near $212.

The recent September 2025 CPI data coming in slightly hot adds another layer of caution, as it could temper enthusiasm for high-growth tech names. For now, the best move is to wait for the earnings volatility to play out. The key is to watch whether that ascending trendline holds as it has for the past six months.