Here’s your trade on Broadcom (AVGO). It’s not what you think. (June 03, 2016)
AVGO
I want to look at Broadcom ( NASDAQ:AVGO ) today. The company reported great earnings. The stock jumped to an all-time high, right? So what I’m talking about is entries, stock selections here. And the first thing I want to do, you can see the daily chart, which I’ll get back to in just a second, but look at the weekly chart. Now Avago merged with Broadcom ( NASDAQ:AVGO ) a while ago so it’s a different company, it’s a bigger company, it’s a better stock too. You can look back here, long solid consolidation followed buy a huge uptrend. This was a narrower consolidation back here, this goes back several years so you can only read so much into it. BUT this here, if we look at this it’s a wider consolidation and the stock is just starting to creep out of the upside. Again, this is a weekly chart. So back here, when you get this volatility squeeze, and it was pretty tight, you get a breakout and it’s got some momentum. This time though, the stock is starting to break out, but I’m looking at this again on the weekly chart and it’s really tough to envision this stock continuing to go up. Frankly, it kind of has to test the box.
So now we’re getting back to the daily chart. This is the thing in this market, companies report strong earnings and the stock absolutely screams and then it craps. Or they report disappointing earnings and the stock plunges and it kind of keeps going. The bottom line is this, there is a selling on the news bias. Still it’s not a buy the news market right now and so if you look at Avago, I’m going into the intraday chart here because I just want to show you how important it is to get the right entries. Here, we’ll look at a weekly chart, when stocks gap up this high, this thing gapped up over 5 percent, almost 7 percent the stock gapped up. When stocks gap up this high think about the mindset of stockholders who were holding the stock knowing that the company was going to report earnings; they expect good news. So when the stock gaps up this high you’re going to have people selling into it. And so instead of just jumping on this and buying it before everybody else does, that’s a brutal way to trade because everybody gets to buy at the same time, it’s called the opening bell. Instead of doing that, hang back, DO NOT buy, you can even short this stock (I teach that in the 59-Minute Trader, which is how to trade in the first hour of the market).
You avoid stocks like this, even though the earnings are awesome, they’re immediately factored in to the price of the stock. Instead, wait a few days. If this is a trading stock for you, trades over dude, you’re done. There’s no trade here. You could short it, but how far down is it going to go? You’re going to get a 4 percent return on it maybe. Doubtful. Instead, you don’t do anything except watch this stock. I’m going to set a price alert just in my personal software, set it at about $1.58. So if this stock falls back and tests this last high, I’m going to get an alert and THEN I will decide whether to buy it. And if the stock doesn’t look good then, you know what I’ll do? I’ll probably set an alert further down. Or, the last thing I can do, and this is something that you truly can do, I’ll just move on to some other stock. Because at the end of the day what we’re really doing is, we are not trading tickers. Warren Buffett doesn’t trade tickers, he buys companies. Okay, good for him. But you’re not trading tickers. What you are trading are trends. And this stock right now, isn’t showing me something I want to do right at this particular moment. I see this ultimately right here, but 162.56 is NOT actionable for me. You wait for a pullback and then you decide whether you want to buy it. Frankly, there’s probably going to be other charts out there that look better. In the final portfolio analysis, isn’t it a little more attractive to have a higher number on your portfolio than to have been right on a particular ticker?
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