Here is your trade on Broadcom $AVGO – June 12, 2023
Dan Fitzpatrick at StockMarketMentor.com; and just a quick video on Broadcom ( NASDAQ: AVGO ).
Now, this little red box here, what this is, frankly, is kind of an oh-crap signal. Where, if we are buying the stock here, and the reason the stock is up so much, other than the fact that buyers are a heck of a lot more aggressive than sellers, the reason is, that the conjuncture is, that they are going to get approval by the EU for their acquisition, and that is kind of a big deal. And so both VMware ( NYSE: VMW ) and Broadcom ( NASDAQ: AVGO ) are up.
But what I like about this is, the trading volume. We’ve still got over an hour and a half to go in the day and we are close to the average volume on the day. My suspicion is, that this will be an above-average day. And so I think, even now, you can buy the stock. But this is the caveat, again, it has had a big move, and I get it, I always see people on YouTube and Twitter tell me what a dumb ass I am. The usual stuff, people say all kinds of stuff when there are no consequences and when they can be anonymous.
But I am putting it right out there, and this is my trade; you are buying this stock here. You are looking at the weekly chart and you see a bigger breakout. This is institutional buying. The distance between the top and the bottom of this range is $230.00. So we extend up $230.00 and we get 260.00-270.00, something like that, depending on how you want to measure it.
And so the point is, this still has a ways to go before it even completes this measured move on the weekly chart. Back to the daily chart, though, you are buying this stock and you always want to define your downside. And to me, this is how I do it, I say, Alright, the only reason I am buying the stock today is because it gapped up just a little bit. Okay, big deal, they all do. And then it ran up, and it is trading, right now, at the high of the day, for the most part, it’s down just a little bit.
It’s up at the high of the day, which indicates to me unless there’s an end-of-the-day selling spree or something, it indicates a really high closing location value, where did the stock close within the intraday range? So I’m buying the stock, I think we are going to get more of a move up. I think this is a descending channel, and now we are going to get this kind of move.
Okay great. What happens if I am wrong? How do I know that I am wrong? Well, this is an easy one because I am relying on today’s intraday range as giving me a reference for where the stock is going to go. So if the stock comes back down a little bit, that’s okay. I’d prefer it would keep going but if it kind of backs and fills a little bit, that’s alright. You expect that after a 6 percent move.
However, if the stock falls down below today’s intraday low of 811.12, then I am going to say, Do you know what, I’m wrong, I’m wrong on this, I didn’t buy it because I thought the stock would pull back. I bought it because I thought that any pullback that did come would be fairly shallow and then the stock would move higher.
So what I’ve done is, I’ve taken a very speculative position. I’ve put, really, about a 4.5 to 5 percent risk on the deal. And in the real world, if the stock were to start pulling back a lot, I would be looking at it on an intraday chart, and then maybe get out early. But even with this 4.5 or 5 percent risk, I think that is a good risk/reward trade. And you are always starting with a smaller position and then you can add to it when the stock starts paying you off. When the stock starts proving to you that you are actually correct on the trade.
Free Chart