Broadcom: Smart Trade on Earnings?

I have been following Broadcom (BRCM) for some time now, and was tempted a few days to get in due to its price drop. On Monday it was upgraded, which got me even more tempted… but this voice in the back of my head whispering ‘consumer slowdown’ keeps me away.

The daily chart looks to have no drop in sight, but the weekly chart is much more structured, and could explain the upgrade (click to enlarge):

Ever since its collapse from the 1999-2000 bubble, the 200 SMA has been acting as a resistance point and major support point. But these past few days the support point is not holding up, and the support of the stock is very much dependent on that trend line. (On these type of stocks, so easily prone to momentum, charts matter.)

In general, tech is not doing that badly, but consumer tech is in a bind with the exception of a few names (ie. AAPL). Unfortunately, BRCM is positioned toward consumer tech, with the exception of a smaller portion of its business. The upgrade mentions how a reduction in expenses may provide a catalyst to beat EPS estimates, and boost the stock. I do feel management may have set things up for this type of situation, sandbagging an already known bad quarter to outperform the next ones.

This maybe a good trade upon earnings. But I do not know if any substantial move upward can be sustained due to the macro conditions of the environment it finds itself in.

Disclosure: none