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Broadcom's Luck Looking Up?

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Even in terrible markets, sometimes it's too late to sell certain stocks.

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I just flew into Vegas and I hope the luck here is better than it's been with Broadcom (BRCM). Getting Broadcom or any chip stock currently to have an up day is like hitting a full boat on the river.

In all seriousness, the fundie story in Broadcom may be better today than it was after they reported earnings as the full royalty payment from Verizon (VZ) came as well as the huge $1 bln announced buyback. However, fundamentals currently don't matter much if at all in the current tape.

This move down in Broadcom is a group move in the high beta comm. chip space.

The sub-slime story is the bearish story that won't die currently and the machines are selling beta every day the market is weak or the VXN is spiking. Broadcom is the large cap beta name with liquidity so it probably takes an inordinate amount of punishment. All of this effect overrides any strong fundie story in tech except for Google (GOOG). But this is also explained by beta as Google's beta is inline with the market -- or close to 1. So the quants are probably effectively long Google and short the Q's or groupings of high beta stocks.

Additionally, you have the SOX testing and breaking a long term trend line today. Many times a selloff isn't over until a trendline breaks, creating the final down move. While some would think this trendline break is bearish I feel it's contrarianly bullish as chips have been punk for most of the year and we need to wash the weak hands out of this group.

Bottom line, I feel confident that when the tech market resumes its outperformance again (or when fundamentals matter again), that Broadcom will be a strong performer and should outperform broad tech and many other chip names. Also, even in terrible markets, sometimes it's too late to sell certain stocks. At these levels Broadcom is likely approaching that level unless this ugly correction turns into a crash. You can buy puts for protection if that helps you manage the position but selling calls probably wouldn't help much currently and caps an upside spike.

Another high beta name in this group acting in similar fashion is PMC-Sierra (PMCS): good results and more design wins of late, but it doesn't matter until the selling is done in the group.

I have trimmed a lot of tech exposure, as stated in prior posts, by selling Google, Apple (AAPL) and other large winners but I have not trimmed much Broadcom. Time will tell if this is a correct stance but continuing dominance and market share gains in the highest growth chip markets (gaming, wifi, wireless networking, smartphones, networking and home entertainment) has me feeling that any losses will more than be recouped.

Good luck -- 7 come 11!
No positions in stocks mentioned.

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