Chart of the Week: Broadcom
It’s time for our chart of the week and this week we’re going to be focusing on big chip company Broadcom; symbol AVGO. Let’s take a look at the chart and see what we’ve got here.
The stock has been on a roll
As the stock was moving through the spring and the summer, we can see that the stock was making a series of higher lows and higher highs – you can see the channel here. And once it broke out above this channel, which was in the middle part of June, it was ready for take off.
And of course what happened here was just an earnings move. The stock moved sharply higher, up over 200 points on earnings day, when they announced also a 10:1 stock split, which is going to be coming up pretty soon.
We had another couple of days up where we gapped higher. And recently filled that gap towards the end of June and came down sharply to this moving average over here, which was the 26 day moving average. Came back down here, tested it and has been starting to run again.
Seven of the last eight days, the stock has been up. It was up strongly on Monday, July 8. If we get above that high from Friday, the 5th – let’s call it about $1,755 or so – if we get above that area, we’re going to make a run towards the old highs. I don’t think that very many people are going to want to sell in front of the stock split whenever that happens, I think in a week or two.
Reaction selling was followed by a rally
Volume hasn’t been that sharp here, but we did some selling happen, and some reaction selling when people just basically got the heck out after they had gotten clobbered after buying the first couple of days after earnings.
Some buyers came in here and short sellers came in and started covering their positions and all of a sudden the stock collapsed, because buyers weren’t picking up the stock on that huge rally post-earnings.
But we hit a level here that was good enough for buyers to step in. You can see three or four days here, about $1,572 was an area where buyers decided to step in and buy. And we rallied right back up.
Indicators look good
MACD is now on a buy signal.
Chaikin money flow is still a little bit bearish right now, but it’s starting to improve. Again, we did have some heavy volume and that probably skewed the Chaikin money flow. Remember it’s a secondary indicator that we take a look at to basically verify or confirm the price indicators.
Now I want to show you another chart called the Chaikin analytics. My good friend Marc Chaikin shows that the stock is in bullish mode right here. They report earnings in about two months, in September. Trends are strong, industry is strong. Obviously, the semiconductor group is extremely good.
But we see that things like the relative strength versus the SPY are bullish. We did reach a little bit of an oversold reading a few days and now we’ve started to turn right back up again, which is bullish. And we’re above all the moving averages.
There’s nothing really bad here about Broadcom. It is a high price stock. But that should be irrelevant, especially when you’re buying options. But we think that Broadcom’s got some room here probably get to the $1,900 – 2,000 level, especially over the next couple of months.
So take a look at Broadcom here, especially as we move into the time when the stock split’s gonna happen. The stock will be about 1/10 of what it is now – about $170 when it does a 10:1 stock split.
But we do like Broadcom here down the road.
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