What Broadcom’s Chart Says Heading into Next Week’s EarningsTech giant Broadcom NASDAQ:AVGO will report fiscal first-quarter results after the bell next Thursday (March 6). What does technical and fundamental analysis say about the stock heading into the results?
Let’s see:
Broadcom’s Fundamental Analysis
I generally think of Broadcom as a semiconductor business that designs, develops and supplies higher-end chips to a range of businesses, but AVGO is also an enterprise-software operation and a cybersecurity-solutions business.
In fact, some investors see Broadcom as one of the best-run, most well-rounded tech companies in the United States (or around the world for that matter).
Oh, and what's with the stock symbol “AVGO”?
Well, do you guys remember Avago? That was a semiconductor company that designed and developed both analog and digital devices.
Broadcom CEO Hock Tan headed Avago back in 2016 when Avago acquired Broadcom, but management decided to name the combined company “Broadcom” because that was better known than Avago.
Still, one quirk left over from the 2016 deal is that Tan never thought to change his company's stock symbol from “AVGO” (unless he just prefers the oddity of it all).
As for Broadcom’s upcoming earnings, Wall Street's consensus view is that the firm will record $1.51 of adjusted earnings per share and $0.85 in GAAP EPS on $14.6 billion of revenue.
Numbers like that would amount to 26% year-over-year adjusted earnings growth and 22% in y/y revenue gains. (Readers might recall that almost three months ago, the firm guided fiscal Q1 sales to $14.6 billion -- well above the Street's expectations at the time for something like $14.1 billion.)
Beyond EPS and revenues, AVGO has long been a free-cash-flow machine. The company generated $5.6 billion of operating cash flow and $5.5 billion of free cash flow in its fiscal third quarter ended Nov. 2. That represented a 39% gain on the free-cash-flow side from the same quarter a year earlier.
As a matter of fact, Broadcom hasn’t produced less than $4 billion in operating cash flow for any quarter in the past 10. It also held capital expenditures to $132 million or less in all of those three-month periods.
Broadcom’s Technical Analysis
Here’s AVGO’s chart as of Tuesday (Feb. 26) going back approximately four months:
What a wild chart!
Readers might first notice the “double top” pattern of bearish reversal spanning from late November into mid-January (and marked with the red line).
This produced a gap-down move in January that triggered the pattern’s $218 neckline, which was the stock’s pivot point at the time. (AVGO was trading at $198.75 at midday Friday.)
However, the last leg of Broadcom’s bearish double-top pattern later morphed into the first leg of a new double-bottom pattern of bullish reversal, marked with green line at right with a $238 pivot point/neckline.
But interestingly, before the stock reaches the bullish pattern’s neckline, Broadcom will have to get past its 50-day Simple Moving Average (or “SMA,” marked with a blue line) at $227 in the chart above.
If you're a bull, that's two upside pivots for you. But if you're a bear, that's two obstacles where resistance could show up.
Meanwhile, Broadcom’s 21-day EMA (marked with a green line) recently crossed under its 50-day SMA (the blue line). That’s often seen as a "swing trader's death cross" –- which is historically a potentially bearish pattern.
Looking at other indicators, Broadcom’s Relative Strength Index (the gray line in the above chart) is weak, but improving.
However, the stock’s daily Moving Average Convergence Divergence indicator -- or “MACD,” marked by the black and gold lines and blue bars at the chart’s bottom -- is less than bullish.
Broadcom’s 12-day Exponential Moving Average (or “EMA,” marked with a black line) is below its 26-day EMA (the gold line). And the histogram of the stock’s 9-day EMA (the blue bars at bottom) has been below zero since Feb 19. Historically, this can all be bearish.
The bottom line? This is a chart that could go either way.
I have no skin in this game, but I see the bullish double-bottom pattern as potentially more impactful than the stock’s MACD, RSI and swing trader's death cross. However, you could argue the point either way.
(Moomoo Technologies Inc. Markets Commentator Stephen “Sarge” Guilfoyle had no position in AVGO at the time of writing this column.)
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