California-based semiconductor company Broadcom (BRCM) held its annual analyst day Tuesday, where it increased its revenue guidance to a range of $2 billion to $2.05 billion from $1.975 billion based on better-than-expected revenue in its infrastructure and networking segment. The guidance lifted investor concerns that arose when competitor Cisco Systems (CSCO) disappointed in its latest earnings announcement in mid-November, which led BRCM stock to tumble.
Still, BRCM stock remains lower by 14% year-to-date, partly due to delays in introducing new mobile chips for supplying smartphones components. Broadcom is the biggest manufacturer of short-range communications chips used in mobile devices and a major player in the manufacturing of television processors.
As a result of the company’s revenue upward guidance, BRCM stock rallied just more than 2% Tuesday, breaking past a key technical resistance level that has been in place since July.
Before looking at the newfound upside momentum, let’s understand that on the multiyear chart below, BRCM stock remains in no-man’s land.
After rallying 250% off the late 2008 lows into its January 2011 highs, BRCM stock began a meaningful slide, which over the course of two years shaped a bearish pennant formation. In July of this year, the stock finally cratered out of this bearish wedge, leading it to marginally undercut its last big line of support — namely, the 61.8% Fibonacci retracement from the entire rally off the 2008 lows.
I often say that technical analysis — particularly on the longer-term charts — is better used to define reference areas of support and resistance than any to-the-penny level for hard stops and profit targets. The marginal undercut of the last line of support for BRCM stock on the above long-term chart is a great example, because just as quickly as the stock slipped below support, it came back up.
Thus, from a big-picture point of view, BRCM stock held the last line of support, and if Tuesday’s price action is a sign of things to come, it could lead to a further rally back toward the underbelly of the bearish wedge formation (lower black line).
On the daily chart below, BRCM stock on Tuesday gapped above the resistance line near $28.40, which had been in place since July. By doing so, it worked into a big empty space, which exists as a result of a nasty down-gap from July 24.
From here, barring any nasty bearish reversals, BRCM stock looks to have newfound upside momentum that could move it toward the $30-$31 range, or roughly around its 200-day moving average and closing of the July 24 gap.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.