Semiconductor giant Broadcom Inc. (AVGO) is the largest component of the iShares PHLX Semiconductor ETF (SOXX) . This makes the stock a key benchmark, which will be put to a test when the company reports earnings after the close today. Shares of Broadcom are in bull market territory up 37.3% since trading as low as $197.48 on July 12, 2018. The stock held its annual pivot at $260.78 on March 8 and this is my buy level given weakness following today's earnings report.
The Philadelphia SE Semiconductor Index ended Wednesday at $1,360.77 up 17.8% year to date and is in bull market territory 27.6% above its Dec. 26 low of $1,066.39. This outperforms all equity averages, which is an important indicator of economic strength as almost all consumer discretionary products we buy contain computer chips from our smartphones to our refrigerators and automobiles.
Broadcom is lagging the SOX year to date with a gain of 6.7% but it set an all-time intraday high of $286.63 on Feb. 20. The stock is fundamentally attractive, with a P/E ratio of 14.49 and dividend yield of 3.93%, according to Macrotrends. This makes this stock a core portfolio holding, which justifies adding to positions on weakness on a negative reaction to earnings.
Broadcom reports quarterly results after the closing bell on Thursday, March 14. Analysts expect the semiconductor giant to earn $5.22 to $5.24 per share. Some say that the company will report that earnings growth is slowing as it faces a weakening environment in smartphone and storage chips sales that should continue in the first half of 2019. Keep in mind that Broadcom has beaten earnings-per-share estimates for at least the last 20 quarters. The positive wild card could be data center applications.
The Daily Chart for Broadcom
Courtesy of Refinitiv XENITH
The daily chart for Broadcom shows that the stock has been above a "golden cross" since Jan. 8 when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. The stock could have been bought that day at the 200-day then at $235.42. The stock closed Dec. 31 at $254.28. This was an important input into my proprietary analytics. As a result, my annual pivot for all of 2019 is $260.78. My quarterly and semiannual risky levels are $308.79 and $310.83, respectively. The close of $275.86 on Feb. 28 was an input to my analytics and resulted in my monthly value level for March at $251.07.
The Weekly Chart for Broadcom
Courtesy of Refinitiv XENITH
The weekly chart for Broadcom is neutral, with the stock above its five-week modified moving average of $267.09 and well above its 200-week simple moving average or "reversion to the mean" at $200.90. The 12x3x3 weekly slow stochastic reading is projected to decline to 78.84 this week, falling below the overbought threshold at 80.00. A weekly close below $267.09 would be negative.
Trading Strategy: Buy weakness to my annual pivot at $260.78 and add to positions at my monthly value level at $251.07. Reduce holdings on strength to my quarterly and semiannual risky levels at $308.79 and $310.83, respectively.
How to use my value levels and risky level:
My value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on December 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week; the monthly level was changed at the end of January and February. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
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