|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: StockCharts.com.|
|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.|
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