Last up this week is semiconductor firm Broadcom (BRCM), a stock that's been forming a bullish setup for the last several months.
Broadcom has been in the process of forming an inverse head and shoulder setup since August 2011. This popular pattern indicates exhaustion among sellers, a fact that BRCM buyers should be using to their advantage right now. The neckline at $38 was the breakout level to watch in BRCM, but shares have held above that level for a week and change now. With shares consolidating just above the neckline, it makes sense to be a buyer on the next thrust up for BRCM.
Even though the head-and-shoulders (and its inverse) is likely the most well known technical pattern, it's still a valuable one: an academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."If you decide to take a position in this bullish trade, I'd recommend keeping a protective stop at the 50-day moving average to reduce your downside risk. Broadcom, one of Bridgewater Associates' holdings, shows up on a list of 4 Chip Stocks Smart Money Is Buying. To see this week's trades in action, check out the High Volume Technicals portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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