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Broadcom Corp. Looking Bearish

03/11/04 07:56:47 AM
by Gary Grosschadl

Broadcom enjoyed a two month gain taking it from $34 to $44. Since then it has consolidated in a recognizable pattern.

Security:   BRCM (Nasdaq)
Position:   Sell

A pennant, marked by the two red lines, has formed on Broadcom's (BRCM) daily chart. This type of formation (small symmetrical triangle) is normally interpreted to be a short-term continuation pattern, however as with all patterns, it is the break outside of the pattern that is most meaningful, either confirming or negating the prior assumption. Broadcom's downside break came on unconvincing volume so additional confirmation is probably prudent.

Looking at the displayed indicators, all point toward bearishness and this adds weight to the negative implication of this pennant's downside break. The nearby 50-day EMA is probably good confirmation going forward as to whether this is a more serious break or not. A bounce off this moving average may lead to a test of the lower trendline and the outcome there should be a more telling signal. On the positive side, a move back inside the pennant would negate the previous bearish implication and most likely pave the way for an eventual move to the upper trendline. The negative view would be a failure either at the moving average support or the retest of the lower pennant trendline.

Daily chart shows a downside move underway.
Graphic provided by:
If this is the case then three support targets are shown by the green arrows, the first being an area of previous support and previous resistance at $37.50 - $38. The second is another previous area of resistance around $35.75, and the third around $34, which is the measured downside of the pennant pattern.

In summary, the short-term implications warrant a sell bias if 50-EMA support is jeopardized. A bounce here is not ruled out so waiting for the outcome may be the prudent plan.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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