Avago Technologies (AVGO) - Get Report , which reports earnings after the closing bell on Wednesday, is one of the 30 components of the PHLX Semiconductor Index, also known as the SOX. Avago is in the process of buying Broadcom (BRCM) for $37 billion, and the deal was approved by European regulators on Nov. 23. The combined company will be a major provider of chips for smartphones made by both Apple(AAPL) - Get Report and Samsung (SSNLF) .
Avago is outperforming the SOX with a gain of 29.7% year to date, with the SOX down 1.4%.
Analysts expect Avago to earn $2.19 a share, and the company has a track record of beating estimates.
Credit Suisse cautions that Apple cut its November orders for chips by 10%, which could affect this earnings report. This research call did not downgrade Avago stock from its buy rating, but the target was reduced by a buck to $158.
Here's the daily chart for Avago Technologies.
Courtesy of MetaStock Xenith
The daily chart shows that Avago had a close of $130.49 on Monday, up 4.4% so far in the fourth quarter and up 29.7% year to date, but is in correction territory -- 13.3% below its all-time high of $150.50, set on June 1.
The stock entered 2015 above a "golden cross," confirmed on June 26, 2013, when the stock closed at $37.25. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. A dip to the 200-day SMA on Oct. 13, 2014, provided a buying opportunity at $68.40.
Shares of Avago gapped higher on Dec. 4, 2014, and on Feb. 26 on positive reactions to earnings. The strong momentum run ended on June 1 with the high of $150.50, which followed a positive reaction to earnings reported on May 28.
The stock declined with the market until setting its 2015 low of $100.00 on the flash crash of Aug. 24. The stock has been trading back and forth around its 200-day simple moving average since Aug. 27, with this average now at $126.77. The 200-day has held as technical support.
Whenever a stock stops trending, it's time to shift from totally looking at moving averages and add Fibonacci Retracements. These are the horizontal lines between the June 1 high and the Aug. 24 low. Given a positive reaction to earnings, the stock should pop above its 61.8% retracement of $131.26. On a negative reaction to earnings, the stock should plunge below its 50% retracement of $125.28, indicating risk to the 38.2% retracement of $119.31.
Here's the weekly chart for Avago Technologies.
Courtesy of MetaStock Xenith
The weekly chart for Avago is positive, with Monday's close above its key weekly moving average of $126.48. The stock is well above its 200-week simple moving average of $67.68.
The weekly momentum reading is projected to rise to 69.10 this week, up from 66.42 set on Nov. 27. Momentum scales from 00.00 to 100.00, with a reading below 20.00 oversold and a reading above 80.00 overbought. A rising reading above 20.0 is positive, while a declining reading below 80.00 is negative. This study is shown in red along the bottom of the chart.
Investors looking to buy Avago should place a good-till-canceled limit order to buy the stock if its drops to $118.61, which is a key level on technical charts until the end of 2015. A tighter technical level of $126.53 is a more aggressive price at which to buy on weakness.
Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $154.00, which is a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.