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Broadcom Peaked, Now Trying To Bounce

06/28/06 10:42:17 AM
by Gary Grosschadl

This stock has seen a dramatic rise and fall. Is there a bounce in the offing?

Security:   BRCM
Position:   Hold

Broadcom is a leading supplier of integrated circuits for broadband communications, outsourcing all semiconductor manufacturing to Asian merchant foundries. The weekly chart shown in Figure 1 shows a dramatic rise and fall, and traders may be looking for a bounce.

Note the candlestick formation as the stock peaked at what was probably a psychological resistance level of $50. This bearish engulfing formation is often a reliable reversal pattern after a strong upleg. Traders who heeded that signal did well to avoid the ensuing downtrend.

Fibonacci retracement levels are plotted on this chart, taking into account the high and low. The most common retracements are shown that roughly relate to declines of 1/3, 1/2 and 2/3. The stock recently touched the 61.8% retracement level, and this can be a strong support level.

FIGURE 1: BROADCOM, WEEKLY. This chart for Broadcom shows important support level.
Graphic provided by:
Adding emphasis to this level is the location of the ever-important 200-period exponential moving average (EMA) currently 30.46. Two possible support levels and a bullish candle pattern hint at bounce potential here. A "piercing line" is a bullish two-day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day. However, this pattern still needs to confirm higher. Currently, it appears to be stalled.

The indicators below the chart showed their warning signs after the stock peaked at $50. For a bullish sign to occur now, the moving average convergence/divergence (MACD) indicator needs a bullish cross. As this is a somewhat lagging indicator, look for the stochastics oscillator to first rise above its oversold 20 level. With a bullish reversal, the relative strength index (RSI) will also give its eventual nod with a move above its key 50 level.

Should a bounce occur, the black arrows show upside targets—a weak bounce to previous brief support near $33, a stronger bounce to the next similar support near 37.50, or a big move to $45 representing the congestion area near the previous peak. Should support fail at current levels near $30, then downside targets are suggested at previous congestion just below $25 and ultimately $17.50, near multiyear lows. A close below the current 200-day EMA suggests failure of the possible bounce.

Gary Grosschadl

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

E-mail address:

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Date: 06/28/06Rank: 5Comment: 
Date: 07/02/06Rank: 5Comment: Thank u for the timely alert on the is there a Bounce in the offing Email :

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