Broadcom Analysis Through Two Different Lenses
Broadcom was hit hard on a very weak day.
While I have focused mainly on writing about fundamental information (and will continue to do so), I also practice the dark arts of Technical Analysis extensively.
First, the persistence of trends in all markets is a powerful force and TA's basically exist to measure this. So here is my primer on some TA's I use, and I'll use Broadcom (BRCM) as it fits the bill nicely after yesterday's large decline.
Click here to enlarge. (Chart courtesy of Tradestation.com)
First, many moving averages were broken through on an intraday basis for BRCM yesterday. However, many MA's were not broken by day's end. Additionally, BRCM was hit hard on a very weak day. While BRCM under-performed the market by a wide margin there was little help from any buying and this made the stock easy to push down by those that wanted to do so on a short-term basis, thus exacerbating any sell the news reaction that was likely to take place on the stock already.
So what did BRCM hold? The 89 dma held, and the 200 dma held. Both are key longer-term MA's. The 26 and 50 week ma's also held today. The 50 dma did not hold but it's only a couple of points away and any move back through that point quickly is again very bullish for the shares.
Other technicals of note are that the MACD is still well above the zero line, though the histogram has gone negative. Money Flow is still above 50, while the RSI and others have broken down, but again many of the other indicators are shorter term in nature.
Lastly, the hourlies turned hard a little after mid-day and BRCM gapped lower on over five times normal volume. If that is not a selling climax, then it's darn close.
I couldn't finish this piece without some amount of fundamental news. In my estimation the negative press and analyst commentary miss some very key points:
1. In weeks BRCM is getting the final Verizon (VZ) numbers on royalties. That number alone could turn an ever so slight guidance miss into a guidance beat on revenues. Even given the guide without those numbers, it's still strong and BRCM rarely gives a guidance number that it plans on matching. Had Apple (AAPL) given a guidance that close to consensus in any time over the last few quarters investors would have shrugged it off and bid the stock higher, assuming the numbers are quite conservative. Does anyone remember what BRCM gave for guidance on the quarter they just reported? It wasn't the number it produced!
2. What are the odds more cellular Tier 1's decide to go the way VZ has done with royalties?
3. What company's chip makes the touchscreen technology on the AAPL iPhone (and iPod Touch) work? Will AAPL proliferate that technology into other devices?
4. How many cell phones currently have GPS chips embedded in them and what asset did BRCM just buy?
5. Who is a leading chip vendor to the resurgent networking sector, that has just burned off a lot of chip inventory over the last 2-3 quarters?
6. Who is a leading chip vendor to the enterprise and home wireless networking markets?
7. What communication chip company has competed effectively and beat BRCM in gaining market share over any sustainable period?
8. And lastly, criticizing a chip company for have too much R&D (especially if it's BRCM), is like criticizing an oil company for spending more money on drill rigs to pump more oil out of known fields.
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