Broadcom Beats Earnings - Here's the Trade Now

Broadcom beat on earnings and revenue and provided strong guidance. For now, the stock is holding up. Here's the trade.
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Up more than 3% on the day, Broadcom  (AVGO) - Get Report is one of the few positives in the tech space on Friday.

At its lows, the Nasdaq was down more than 5% on Friday. That follows the 4.9% dip in the prior session. Bulls who had been lulled by the easygoing rise in the Nasdaq this summer were dealt a swift 10% two-day decline.

Impressively though, Broadcom has found a way to buck the trend.

The company reported a top- and bottom-line beat on Thursday evening, while also declaring another $3.25 quarterly dividend. That gives the stock a yield of roughly 3.7%, making it attractive vs. Treasury bonds and other fixed income offerings.

Broadcom saw its free cash flow climb 33% to a new record, while shaving almost $2 billion off its debt load. Finally, management provided above-consensus guidance for the fourth quarter.

Let’s look at the stock, which is deservedly higher after the print.

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Trading Broadcom Stock

Daily chart of Broadcom stock.

Daily chart of Broadcom stock.

Looking at the chart of Broadcom, the consolidation over the past few sessions looks constructive.

On the plus side, shares continue to hold above the 10-day moving average, showing that bulls are retaining control of the stock in the short term. Further, Friday’s dip was bought and shares did not violate the prior session’s low.

Now we need to see one of two things happen, as we have a wide daily range in the stock so far. Investors either need to see a rotation up through Friday’s high or down through its low. Those levels are currently at $372.53 and $353.50, respectively.

If Broadcom rotates through the high, it puts the all-time high in play near $379. Above that and the 138.2% extension is on the table at $392.11.

On a move below Friday’s low and the 10-day moving average, the 20-day moving average and uptrend support (blue line) are the next levels up for grabs. Depending on the climate of the Nasdaq, investors may or may not use this level as a buying opportunity.

Ultimately, I would love a further dip down to the 50-day moving average and the big breakout level near $320. That was the pre-coronavirus high, as well as resistance in June and July. Once Broadcom stock broke out over this level, it was support in August.