Thursday, July 27, 2000

Broadcom - BRCM

This stock is a day traders dream. Once it gets going one way or another, there is some serious profits to be made. Unfortunately for BRCM shareholders, the current direction looks down.

The stock broke out of a double bottom formation in late June on heavy volume. But that first day was the only good thing about the breakout. The stock proceeded higher on below average volume, which indicated a lack of interest on the part of the institutions to accumulate the stock.

The stock has now formed a potential head and shoulder top. It is currently sitting right at the neckline. Its relative strength line is on the verge of breaking down. A break below the neckline, under 220, could take the stock under 200, to the breakout level of the double bottom around 188.

The stock is closely related to the SOX index, so if the breakdown in the index is any indication, the stock should follow suit. One important warning, don't overstay your welcome if the market turns up. The reason I say the market, is that even if the stock is weak, a strong market will most likely pull this bad boy higher, and fast. A small profit could turn into a big loss in a blink of an eye. This short is for investor who can watch the stock closely during the day. If you do short BRCM and get stopped out, don't be afraid to re-enter the short again. The market is most likely getting oversold and is due for at least a technical bounce over the next few trading days.

Remember: 7% stop losses from your buy point on all trades, or whatever you're comfortable with. Preserve your capital, and you will live to fight another day. Lose it, and back to mutual funds you go.
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