Where Broadcom Can Go If Shares Break Out to New Highs

Broadcom is jumping on earnings even though profit was in-line with expectations. Here's how to trade the stock now as it nears new highs.
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Broadcom  (AVGO) - Get Report is following in the footsteps of many stocks in the tech space as it looks to hit new highs.

Shares have risen 6% on Friday after the company reported second-quarter earnings after the close on Thursday. With shares near $328, the stock is just a few dollars away from passing its all-time high at $331.58.

Apple  (AAPL) - Get Report hit new highs on Friday, while Nvidia  (NVDA) - Get Report did so a few weeks ago. The tech space has been red hot and Broadcom’s no longer missing out on the action.

That’s even after the company reported in-line earnings results, although revenue topped expectations. Sales of $5.74 billion grew 4% year-over-year and beat analysts’ estimates by $50 million.

Guidance was just okay, with management looking for third-quarter sales of $5.6 billion to $5.9 billion, while the consensus estimate sits at $5.8 billion. Strong demand is present, but supply chain constraints are restricting business, management said.

It’s better to have a supply chain strain than a lack of demand, and clearly investors see it that way too, bidding Broadcom stock higher. Let’s refresh the charts.

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Trading Broadcom Stock

Daily chart of Broadcom stock.

Daily chart of Broadcom stock.

The chart above is adjusted for dividends, which shows Broadcom stock hitting new all-time highs. Investors have to be careful though, that new highs (on an unadjusted basis) won’t be hit until the stock clears $331.58.

If it can close above this mark, Broadcom stock will be in a clear breakout.

In the fourth quarter of 2019 and first quarter of 2020, this $325 area has been tough resistance. Shares have not been able to clear it, being rejected on each rally up toward this mark.

With earnings out of the way — and with Wall Street responding favorably to the report — all Broadcom needs is the broader market to continue higher. If the stock rallies to new all-time highs, investors will have their eye on $350. Above $350 is the 123.6% extension near $366.

Should shares reverse lower, look for a post-earnings gap fill down toward $310. Below puts $300 in play, followed by the 20-day moving average, then the 200-day moving average.

In terms of the downside though, let’s not overcomplicate it. Below $310 changes the bullish trade and will force us to reconsider the setup.