Broadcom Inc. (AVGO) had been a strong momentum stock, but that ended a year ago. The stock has been below a "death cross" since March 20 and set its 2018 low on July 12. The weekly chart shows a downtrend connecting the highs of December 2017 and June 2018. The stock is trading around my monthly pivot at $233.23, with my annual pivot at $221.29.
Broadcom is one of the most important semiconductor stocks, as it's the largest component of the iShares PHLX Semiconductor ETF (SOXX). The stock closed Tuesday, Dec. 4, at $232.04, down 9.7% year to date and in correction territory at 15.3% below its 2018 high of $273.85 set on March 13. The stock has been in recovery mode, up 17.5% since setting its 2018 low of $197.46 on July 12.
Analysts expect Broadcom to post earnings per share between $5.55 and $5.72 when the semiconductor leader reports results after the closing bell on Dec. 6. The company is involved in a wide range of semiconductor products, including wired infrastructures, wireless communications, enterprise storage and industrial applications. This diversification should keep the company in a leadership position in the semiconductor industry.
The growing technologies of the "Internet of Things" and the evolution of 5G internet connections should offset a decline in large wireless business and slowing spending on video access, particularly in China.
The daily chart for Broadcom
The daily chart for Broadcom shows that the stock has had an extremely volatile ride in 2018. The stock set its 2018 high of $273.85 on March 13 and then slumped even after a positive earnings report on March 15. Broadcom shares traded as low as $221.98 on May 4 and then popped to as high as $271.81 on June 15 after a positive reaction to earnings on June 7.
Broadcom stock plunged lower on July 12 when the company announced plans to purchase CA Inc. in a surprise move. The stock was immediately below my annual pivot at $221.29, which would become a strong magnet between July 25 and Nov. 12. As we enter December, I show a monthly pivot at $233.23.
The weekly chart for Broadcom
The weekly chart shows a downtrend connecting the highs of $285.68 set in December 2017 and the lower high of $271.81 set in June 2018. This trend comes in at $258.30 as 2018 ends. The weekly chart will be negative at the end of this week if the stock ends the week below its five-week modified moving average of $232.35. The stock is above its 200-week simple moving average, or "reversion to the mean," is at $191.21, which is a price at which to buy on weakness. The 12 x 3 x 3 weekly slow stochastic reading is projected to end the week at 57.36, down slightly from 57.70 on Nov. 30.
Given this analysis, investors should buy Broadcom shares on weakness to my annual value level of $221.29 and reduce holdings on strength to the downtrend resistance at $258.30.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.