Stock Of The Week: Broadcom (AVGO)

The headlines are screaming all over the place that the stock indexes are making new highs. Yet not many cheers are going around except for the hype promoters, the insiders, and the occasional early buyer of some of the select few stocks. The Artificial Intelligence craze abounds yet not very many new young AI stocks are showing the kind of price/volume action one should see in a full-blown bull market.

This week another heavy weight seemed to want to show some support and join Nvidia (NVDA) in what is supposedly an early stage of a street fight for AI dominance. It is normal for water to seek its level and as most economics 101 students will tell us, supply will always try to meet the demand. The pendulum swings back and forth, sometimes demand outstripping the supply and other times supply exceeding the demand.

If the demand for AI is not being met, surely all those smart folks in the technology sector will figure a way out to meet the demand. If Nvidia or Broadcom can reap the rewards, that reason alone is enough to invite other players into the field to get a share of the rewards.

Is The Nasdaq In An Uptrend?

The Nasdaq has been basing for two years with most of the time delivering returns that were less than stellar. Since the 2021 top of 16,057 it has been a challenge in the market to find anything that seems like a sustained move. Most stocks had already turned to their downward direction by the time Nasdaq topped in 2021. Nasdaq was a lagging indicator then.

It was not until early this year, 2024, that Nasdaq reclaimed its high set in 2021. Now comes the real test. Can it show some period of sustained move? The chart of Nasdaq for the most recent four years is shown below.

What Should Happen If The Nasdaq Is Rising?

The simple answer is that new technology stocks should show up making new highs without taking out their prior lows. But that is not such an easy statement to make. The Nasdaq index itself is tilted heavily by a few stocks. And a few stocks can paint a rosy picture leading one to make wrong assumptions.

But what does a stock like Broadcom (AVGO) say about the Nasdaq if anything? Probably not much since one stock cannot represent the market or the entire sector as a whole. But Broadcom (AVGO) joining Nvidia (NVDA) should be encouraging, right? Not so fast. Everything is step-by-step. It is never a good idea to make sweeping statements about the market’s condition. In real time nothing seems like it truly is. It is only in hindsight that the picture becomes clear.

Take a look at the three-year chart for Broadcom (AVGO) above. Its stepwise move from its $665 price range to $900 to $1400 seems simple and clear even to the layperson. In other words, it is obvious. There seems to be a rhythm to its price/volume action that is also quite obvious.

Is Broadcom (AVGO) Stock Rising?

The definition of an uptrend is a stock that takes two steps forward and one step back. In other words, it makes a series of higher highs and higher lows. Take a look at Broadcom (AVGO) stock prices over the past fourteen months.

The intermediate high prices are shown with white arrows and intermediate low prices with red arrows. There has never been a prior low undercut by ten percent or more for the past fourteen months. You allow the ten percent violation of a prior low for any potential volatility or shake-out in a stock.

The one time a prior low was undercut, it did so by less than four percent. The latest low at $1204.71 closed below its prior low of $1245.48. But there was an intraday low invisible on weekly closing charts at $1197.56 as shown by the yellow-colored text. That is still less than four percent below the prior low. A trailing stop at ten percent below the prior low would not have been touched off.

It is unusual for a heavy player like Broadcom (AVGO) to show this type of sustained trend. Hence, one could draw the inference that whatever is happening is quite unusual. Given that, how does that affect your decision-making, assuming it does.

Would you be able to keep your trading rules in place? Broadcom (AVGO) will join Nvidia (NVDA) and undergo a 10-for-1 stock split soon. Presumably, the thought is a lower price will invite more buyers and more interest in the stock. There are no guarantees. It all depends on the big players involved. If they want the stock to keep on rising, they will keep supporting it at prior lows. Until at some point when they withdraw that support.

Will there be other heavyweights joining? Or will the lesser-known stocks join? Or be left behind? Is the action all in the technology sector or is it more widespread than what meets the eye? What about Pharmaceuticals? Biotechnology? Healthcare? AI should make its way into those fields as well, shouldn’t it? Or is the timing still off?

Would you be able to observe the obvious or will you fall for the stock promoters and hype creators? Isn’t it all just so much fun trying to decipher what really is going on?

Here is synopsis in video form for those who prefer a video to an article.