Broadcom (AVGO) has been trading sideways to higher the past two months. The highs are around the $175+ level, with higher lows being established at $159, then $163 and $166.
Normally I would view this kind of price action to be an ascending triangle pattern, which is a bullish continuation pattern. By this I mean the uptrend before the pattern is likely to continue after the pattern. It doesn't happen all the time, but it happens enough for technical analysts to say it works.
Why don't I agree? Fair question. Let's look beneath the price action and check the indicators.
In this 12-month daily chart of AVGO, above, we can see the slope of the 50-day moving average line has turned down. Yet the longer 200-day average line is still pointed upward. Next, look at the On-Balance-Volume (OBV) line, which has moved sideways despite the sideways-to-higher price action. I would feel more constructive about AVGO in the near term if the OBV line was rising. A rising OBV line suggests buyers are being more aggressive with the daily volume being heavier on days when AVGO closes higher. In the bottom panel is the 12-day momentum study, which shows price momentum has been getting weaker the past two months. Sure, AVGO could break out on the topside with a close over $178, but I can't defend it right now.
In this three-year weekly chart of AVGO, above, we can see prices are above the rising 40-week moving average line. This positive technical condition tells me to trade from the long side. The weekly OBV line has been mostly flat the past eight months, even while prices have moved higher. I would feel more confident of the durability of the rally if the OBV line was rising. In the lower panel is the Moving Average Convergence Divergence (MACD) oscillator and it has recently rolled over to a sell signal. Not an outright sell or a go-short signal, but rather a signal to take profits on longs.
Conclusion and strategy: The longer-term trend is certainly up, but the issues I have raised about the daily chart tell me to temper my enthusiasm. What do we do? I would try a buy stop at $179 to go long and a sell stop at $161 if prices fail and turn lower.