Investors are grappling with what to do with a stock like Broadcom Inc. (AVGO) , which has seen a remarkably strong short-term rally within an already strong long-term uptrend. AVGO is the best performing stock in the S & P 500 month-to-date, with a gain of more than 30%. Several other semiconductor stocks help round out the top ten performers this month, which shows very concentrated leadership from stocks related to artificial intelligence. When trends steepen or “go parabolic” like AVGO’s, many investors cannot stomach a retracement back to initial support. For AVGO, the breakout point of approximately $1,438 is the first meaningful support, in our view, and it is about 17% below Friday’s close. So, what is one to do with a position in AVGO and other seemingly extended semiconductor or AI stocks? We can use simple technical analysis tools to help us identify when it may be time to reduce exposure, and therein help relieve the emotional attachment to a longtime winner. One metric we like to track is the 20-day moving average as a sell indicator. The 20-day moving average usually starts to roll over before support comes in-line. We have found that when it flattens after a steep upmove, it signifies enough of a loss of momentum to warrant partial reduction in exposure. This can be achieved by simply selling part of your position, keeping in mind any tax implications, or employing a hedging strategy. Another way to discern whether a significant pullback may be unfolding is by “watching the gap.” In steep uptrends that seem unstoppable like AVGO, we often see gaps up after strong upmoves that increase the probability of short-term trend exhaustion. Last week, AVGO gapped up, leaving a potential vacuum of support on the chart between about $1,653 and $1,506. Those who are sensitive to pullbacks might consider a stop-loss below $1,653 to manage risk that the gap is filled. Long-term investors in AVGO and other high-flyers like Nvidia may choose to ignore any loss of short-term momentum, noting that long-term momentum is still strongly to the upside. However, because the corrective phases can be dramatic, we would keep the technicals in mind for risk management. They can help us not only reduce exposure when it is timely, but also to return to a full position when the stock discovers support. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.
