Broadcom (AVGO) and the Downgrade
Broadcom (AVGO), one of the biggest leaders in the S&P 500, got downgraded by Redburn to neutral from buy. Redburn cut its price target to 398, down from 595. The firm said AVGO's ties to Anthropic and OpenAI mean these Frontier Labs need to build lasting lead over open models and fund themselves soon. The upside once AVGO clears these hurdles is sizable, but is unlikely to happen fast.
Despite that negative call, some see AVGO gaining from the swings around Nvidia (NVDA). The whole semiconductor industry is in a rough patch.
Performance
AVGO is up 7.2% over the past year. It still lags the broad tech sector, measured by the XLK ETF, and the semiconductor group, measured by the SMH ETF. Among chip names, AVGO beats Nvidia (NVDA) for now, but AMD (AMD), Marvell (MRVL), and Intel (INTC) are all outperforming AVGO by a wide margin.
Chart Levels
A longer downward trend line (blue) that started at highs near 495 has now been broken. A shorter, steeper upward trend line (white) began at lows of 289.77. AVGO made modest new closing and intraday lows past its prior floor, but did not push far beyond that level. It held near a double bottom pattern, then pushed up.
Key levels to the upside:
- Old highs near 381 are the next area to clear.
- Above that sits a double top: a high after a gap down on earnings, then another high near 427.
Key levels to the downside:
- A gap at 344 to 335 could fill if the upward move falls apart.
- The 251-day exponential moving average (orange) and the 63-day (gold), which stands for a year and a quarter, both line up near 350, matching the trend line. This is a support zone for bulls or a breakdown point for bears.
- The old trend line and the two shorter EMAs, the 5-day and 21-day, line up around 335 to 340.
RSI is trending up, broke above the 50 midline, and broke above its red downward long-term trend line, pointing to bullish momentum.
The volume profile shows most trading, including the point of control (the heaviest-traded price), sits at the lower part of the chart. The general node runs 321 to 356, and the point of control is 345. AVGO is now starting to push above that area. Activity then fades, with one small spike at 415 to 425 before price would move into thinly traded zones.
For the next monthly expiration on November 20th, 7 days out, the expected move is about plus or minus 6.9%. That points to no large breakout past the repeated highs near 365 over the coming week.
Example Trade: Short Put Vertical
Before a slight pullback, AVGO was up 24% this week, matching a similar move in AMD (AMD). Competitors may be taking advantage of a possible slide in Nvidia (NVDA) sales, and investors appear to be positioning for that. AVGO is still down about 26% from its summer all-time highs.
The chosen approach is passive and neutral to bullish, fitting a volatile chip market. AVGO reports earnings in early December, so the trade uses the November 27th weekly options, 14 days to expiration, to avoid that earnings event.
The structure is a short out-of-the-money put vertical:
- Sell the 340 strike put.
- Buy the 330 strike put (bought as protection because this is a high-priced stock and anything can happen).
- This makes a $10 wide neutral-to-bullish put vertical.
With AVGO opening near 356, the trade collects about a $3 credit. The credit is the most you can make: $300 of reward against $700 of risk, so risk is larger than reward, but the odds of success are better. The $3 credit lowers the break-even to 337, which is over 5% below the 356 level. The short 340 strike has about a 66% chance of finishing out of the money at expiration. The trade wins if AVGO goes higher, holds flat, or even drops a little, as long as it stays above the 337 break-even.
