The move has the stock teetering on a vital moving average, but it isn't the past three months of business causing the selloff. In fact, Broadcom topped quarterly earnings estimates of $5.18 per share, reporting a bottom-line profit of $5.21 per share. Revenue did miss the mark, but guidance is what really tripped up investors.
Management expects full-year revenue of $22.5 billion, well shy of consensus estimates of $24.31 billion. From CEO Hock Tan:
"While enterprise and mainframe software demand remained stable, particularly in North America and Europe, with respect to semiconductors, it is clear that the U.S./China trade conflict, including the Huawei export ban, is creating economic and political uncertainty and reducing visibility for our global OEM customers."
The outlook sent a pessimistic wave racing through Wall Street on Friday morning, as the trade war continues to inflict pain on various industries. This time it's the semiconductors and chipmakers, with Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report , Micron (MU) - Get Micron Technology, Inc. (MU) Report , Nvidia (NVDA) - Get NVIDIA Corporation Report and others down in sympathy.
While Broadcom stock is off to a tough start, the charts aren't completely falling apart. Let's look to see where it could head next.
Trading Broadcom Stock
Broadcom stock tested its 50% retracement for the one-year range at $257.71. That mark is holding so far, as is the 200-day moving average. If Broadcom can hold Friday's low, perhaps it can cobble together a rally back up to the 20-day.
The problem, though? Guidance came up well short of expectations and Tan just told investors that issues from the first half of fiscal 2019 are likely to persist into the second half of the year.
Many view his comments as overly cautious, with some analysts already defending the name. Further, AVGO stock currently sports a 4% yield and trades at less than 12 times earnings (although likely more once EPS estimates fall). So to some extent, there will be buyers, including Broadcom via its buyback program.
However, that doesn't change the fact that Broadcom stock has a double top at $320 and has put in a series of lower highs since. The trends are turning lower and that's going to give AVGO stock an uphill battle, technically speaking. That battle is easier to fight when the fundamentals line up, but if Tan is right, the fundamentals just aren't there in the short to intermediate term, despite how great of a company Broadcom is.
Above Friday's lows and longs can stay with Broadcom stock. Should they give way, though, see how it does with the May lows. For about a week, AVGO stock bounced continually along the ~$251 mark. If that gives way, the 38.2% retracement near $242 is on the table. Below that and Broadcom could see $220.
So where does AVGO stock turn to trouble? Losing Friday's lows is worrisome, but below $250 is the trouble spot.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.