Broadcom Is Showing Slowing Momentum: Our New Technical Strategy

I don't want to be too bullish on AVGO.

Broadcom Inc. (AVGO) has reached one of our upside price targets so a fresh review is needed.

We last looked at AVGO on Aug. 31 and recommended, "Traders and investors could stay long AVGO ahead of earnings as all the charts are bullish. I have no special knowledge of the earnings' numbers, but it looks like a positive report is being discounted. Risk a close below $315. $400 and $421 are the next upside price targets."

Now that prices have passed $400 a new strategy may be warranted.  

In the updated daily bar chart of AVGO, below, we can see that the shares have traded higher since our last review. The $400 price target has been reached and we are not far from the $421 objective. Traders could raise stop protection to $370 from a close below $315. Prices are above the rising 50-day moving average line but a bit extended when compared to the rising 200-day line that intersects around $310 now.

Trading volume has been diminishing since early September which is not a bullish setup. The On-Balance-Volume (OBV) has not broken above its October peak even though prices have made new highs. The 12-day price momentum study is showing lower highs from September while prices have made higher highs. This is a bearish divergence and can foreshadow a correction or pullback. 

 

In this weekly bar chart of AVGO, below, we can see a mixed picture. Prices have more than doubled from the March low. AVGO is above the rising 40-week moving average line and the OBV line has been strong.

 

The 12-week price momentum study in the bottom panel of the chart shows weakening momentum readings from June. Momentum has been slowing for half the year and is a large divergence.  

 

 

In this daily Point and Figure chart of AVGO, below, we can see a potential upside price target in the $490 area -- a triple from the March nadir.  

 

 

Bottom-line strategy: Raise stop protection to $370 and look to book some profits on approach to $420. Our new Point and Figure target of $490 cannot be ruled out but with price momentum slowing I don't want to be too bullish on AVGO.

(Broadcom is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.)

Employees of TheStreet are prohibited from trading individual securities.