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FLAGS AND PENNANTS


Broadcom Comes To Life

02/09/05 10:11:53 AM
by Arthur Hill

Broadcom held up better than the Nasdaq in January, and the recent breakout argues for higher prices in February.

Security:   BRCM
Position:   Buy

The price relative measures the strength of a security relative to another, usually an index. In this case, the price relative shows Broadcom (BRCM) relative to the Nasdaq. For signals, traders can look for bullish divergences, bearish divergences, upside breakouts, and downside breakouts.

The price relative for Broadcom sports a bullish divergence and is on the verge of an upside breakout (green arrow). This bullish divergence occurred in December and January. January was a period of weakness for the Nasdaq, and the bullish divergence indicates that BRCM held up better than the Nasdaq. In other words, Broadcom traded relatively flat in January while Nasdaq declined.

Figure 1: Broadcom. This stock held up better than the Nasdaq in January, and the recent breakout argues for higher prices in February.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
In addition to good relative strength, the price chart for BRCM shows a bullish flag and high volume breakout (gray arrows). The stock advanced in November and broke resistance at 31. The subsequent falling flag represents a two-month consolidation, and the breakout signals a continuation of the prior advance. Note that bullish flags typically slope down and bearish flags slope up. After an advance, this falling flag represents a mild correction.

With the breakout in early February, upside momentum has resumed and the upside target is around 38. Flags are said to fly at half-mast, and the first move was around eight points. A corresponding eight-point move from the flag low projects another eight points higher (green lines). Broken resistance at 32 becomes support now and the first level to watch for signs of failure.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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