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Continued Weakness in the Technology Sector

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I think I see a trend developing - warn that your revenues are going to be lower than expected, and watch your stock go up. Broadcom (NASD:BRCM) was the latest technology stock to caution that second-quarter revenue will be 32-35 percent lower than first quarter revenue. Of course the stock is up $3.92 since BRCM will be taking "cost cutting measures," or as it's more commonly know, cutting jobs.

Broadcom Daily Chart

At least the technicals make some sense. Anchoring a retracement bracket to the 4/4/01 low and the 5/2/01 high shows that BRCM dropped to the 61.8% retracement level at $31.94 and consolidated there for a couple of days. That gave the MACD time turn up from oversold levels, and then Broadcom quickly jumped $3. But that put the stock at the 38.2 retracement level, so it had to pull back to $35.34 and rest for a few hours just above the 50-pma. After getting a good night of sleep the stock exploded this morning, and paused at $38.73 for a few hours before moving higher. It's now stuck at the 200-pma, a psychological round number of $40, and the 50% level of the new retracement bracket anchored to the 5/22/01 high and the 5/30/01 low. A new bracket is necessary since all levels of the old bracket have been exceeded. Should BRCM pull back, I would look for prices to stop at $38.50, which is the previous high and new 38.2% retracement level. It's all so clear to me if I just look at the chart, and shut off CNBC.

Jeff Canavan
Assistant Analyst

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