Broadcom Inc. (AVGO) report earnings on Sept. 12, with Wall Street analysts expecting profits of $5.15 per share on $5.52 billion in fiscal third quarter revenues. The stock sold off nearly 6% after June's second quarter release after the company missed on revenues and lowered fiscal year 2019 guidance. It bounced quickly after the downdraft but has traded within a relatively narrow range for the past three months.

Macro headwinds are driving current price action, with semiconductors coming under pressure in reaction to the escalating trade war between the United States and China. Broadcom performance is also levered to Dow component Apple Inc. (AAPL) through its supplier relationship, adding vulnerability to relations with the Asian nation. The threat of an economic slowdown is weighing on shares as well because chip stocks are cyclical instruments, with demand slumping during recessions and surging during expansions.

The resumption of trade talks in October could put a floor under the stock price, at least for the first half of the fourth quarter. However, skepticism about an actual deal remains exceptionally high because President Trump has much to gain by talking but little to gain through an agreement, which require compromises that could be distasteful to his conservative political base ahead of the 2020 election.

Stakes will grow higher for chip stocks before the next tranche of tariffs goes into effect in December. The sector will be especially vulnerable if trade talks break down once again because China is likely to target a broad swath of tech companies, potentially generating a repeat of 2018's ugly sell-off into year end. Hopefully, both superpowers will finally learn that kicking the can isn't the same thing as a broad rapprochement.

AVGO Long-Term Chart (2009 – 2019)

Long-term chart showing the share price performance of Broadcom Inc. (AVGO)

The February 2016 merger between Avago Technologies and Broadcom Corp. created the current company, which uses Avago's long-term chart. That manufacturer came public in the mid-teens in August 2009 and settled into a trading range between $14 and $19. It broke range resistance in 2010, tested new support for six months, and took off in a trend advance that stalled near $40 in the summer of 2011.

A 2013 breakout generated impressive gains, rising in a narrow channel that persisted into the 2015 high at $150. It cleared that level in the second half of 2016, carving a strong rally leg that ran out of steam under $300 in the fourth quarter of 2017. The stock struggled through all of 2018, finally turning higher in January 2019 and rallying to an all-time high at $323 in May. Price action since that time has been confined to resistance at that level and support at the May low near $250.

The monthly stochastics oscillator crossed into a sell cycle from a deeply overbought technical reading in May 2019, predicting at least six to nine months of relative weakness. The indicator has just crossed higher from the panel's midpoint, but this level often triggers false signals. The stock has been crisscrossing the 2017 high since May, carving a complex test of the March 2019 breakout.

AVGO Short-Term Chart (2018 – 2019)

Short-term chart showing the share price performance of Broadcom Inc. (AVGO)

The on-balance volume (OBV) accumulation-distribution indicator stalled with price in 2017 and entered a persistent distribution wave that posted a two-year low in July 2018. Buying pressure into March 2019 mounted the prior OBV high at the same time as price, showing tight correlation. It bounced off the 2017 peak in June and is now oscillating close to the all-time high, signaling a strongly loyal shareholder base that should eventually support much higher prices.

Price action since May 2019 reveals a symmetrical triangle that has now engaged in a fourth wave bounce. These patterns are expected to draw five waves prior to a breakout or breakdown, so taken together with the bearish monthly cycle, market players should not expect a trend move for several months, at a minimum. As a result, there isn't much reason for sidelined bulls to jump into Broadcom ahead of next week's earning report.

The Bottom Line

Broadcom is testing the 2019 breakout above the 2017 high near $285, but macro headwinds and mixed technicals predict that neither bulls nor bears are well positioned to take control of long-term price action.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.