Option Investor
Market Updates

Tech turned lower as Broadcom comes unglued

Printer friendly version

After giving a powerful spread-triple bottom sell signal on Friday at $30 and inching lower yesterday, shares of Broadcom (NASDAQ:BRCM) $25.00 -16% are getting dismantled today on concerns that Motorola (NYSE:MOT) $14.51 +0.41% will partner with Texas Instruments (NYSE:TXN) $27.40 -0.54% on a competing cable modem. Analyst Nathaniel Cohen at Goldman Sachs doesn't believe this would materially impact BRCM revenue, however, and recommends using any resulting weakness in the stock as a buying opportunity.

Broadcom Chart - $1 box

According to Professor Earl Davis' study of probabilities of chart patterns, the spread triple-bottom sell signal is profitable for a bearish trader 86.5% of the time, for an average gain of 24.9% in 4.6 months. Just 2-days after giving this sell signal, shares of BRCM have gotten hit hard and lost 16% of their value so far today. Resistance should be firm at/near the $31 level. It is my view (Jeff Bailey) is no more a buying opportunity today than it was Friday or yesterday.

By no means is today's "concerns" of Broadcom's (BRCM) relationship with Motorola (MOT) a reason for broader technology weakness, but does perhaps hint at just how willing investors are getting to sell first and ask questions later.

Bearish traders are continuing to find some good short/put opportunities in stocks giving some of the sell signals from Professor Davis' study when they're identified.

Recent action in BRCM and then today's "revelation" regarding MOT makes one wonder if something wasn't know prior to today's concerns.

Mixed markets

With just over 1 hour of trading underway, technology sector have come under pressure. Leading declines have been the Semiconductor Index (SOX.X) 02.8%, Biotech (BTK.X) -2.5% and Software (GSO.X) -2%.

Strength is being found in the financials with the S&P Banks Index (BIX.X) +1.14%, KBW Bank Index (BKX.X) +1.08%, Cyclicals (CYC.X) +1.07% and Home Construction (DJUSHB) +1.45%. Retail stocks as depicted by the S&P Retail Index (RLX.X) are holding steady with a 0.68% gain.

Jeff Bailey
Senior Market Technician
Option Investor

Intraday Update Archives