Short Trade Idea
Enter your short position between $385.59 (Friday’s intra-day low) and $403.01 (the intra-day low of its last bullish candlestick).
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Market Index Analysis
Broadcom (NASDAQ:AVGO) is a member of the NASDAQ 100 Index, the S&P 100 Index, and the S&P 500 Index.
All three indices experienced a massive one-day sell-off amid surging bearish trading volumes.
The Bull Bear Power Indicator for the NASDAQ 100 Index turned bearish with a descending trendline.
Market Sentiment Analysis
Equity futures are mixed this morning following Friday’s massive AI-led sell-off, mixed with a moderate repricing towards an interest rate hike this year to combat inflation, as the US Fed is behind the curve while the labor market remains healthy. Renewed fighting in the Middle East keeps upward pressure on oil prices, which are slowly moving towards the $100 barrel mark again. Earnings from Oracle and Adobe highlight this week, with all eyes on Friday’s blockbuster SpaceX IPO.
Broadcom Fundamental Analysis
Broadcom designs, develops, manufactures, and supplies semiconductor and infrastructure software products. It primarily serves the data center, networking, software, broadband, wireless, storage, and industrial markets.
So, why am I bearish on AVGO amid its 22%+ two-day plunge?
While Broadcom narrowly beat revenue and earnings per share expectations of $22.13 billion and $2.40, reporting $22.19 and $2.44, respectively, it disappointed with its third-quarter revenue guidance of $16 billion, falling well short of the expected $17.2 billion, and maintained its full-year revenue guidance of $56 billion despite the AI frenzy. AVGO lost nearly a quarter of its market capitalization in 48 hours, but valuations remain excessive. I am equally bearish on customer concentration risks, as major hyperscalers are shifting to in-house solutions.
Metric | Value | Verdict |
P/E Ratio | 64.07 | Bearish |
P/B Ratio | 20.83 | Bearish |
PEG Ratio | 0.71 | Bullish |
Current Ratio | 2.24 | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
The price-to-earning (P/E) ratio of 64.07 makes AVGO an expensive stock. By comparison, the P/E ratio for the NASDAQ 100 Index is 35.14.
The average analyst price target for AVGO is $512.73. This suggests excellent upside potential, but downside risks are high.
Broadcom Technical Analysis
Today’s AVGO Signal
The AVGO D1 chart shows price action breaking down below its horizontal resistance zone.
It also shows price action between its ascending 50.0% and 61.8% Fibonacci Retracement Fan levels.
The Bull Bear Power Indicator turned bearish with a descending trendline.
The average bearish trading volumes are higher than the average bullish trading volumes.
AVGO plunged more than the NASDAQ 100 Index, a bearish confirmation.
My AVGO Short Stock Trade
AVGO Entry Level: Between $385.59 and $403.01
AVGO Take Profit: Between $289.96 and $301.75
AVGO Stop Loss: Between $431.47 and $442.22
Risk/Reward Ratio: 2.08
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