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Tight Squeezes Across the Chip Space

Long
NASDAQ:AVGO   Broadcom Inc
Several chip stocks are squeezing into tight ranges with breakout potential.

Notice how Broadcom briefly knifed under its 50-day simple moving average ( SMA ) on July 2. (It followed an antitrust complaint.) The bears quickly surrendered, and a week later AVGO had its highest close since mid-April. So you have a false breakdown and a strong bounce outside of the range. That could draw some buyers from the sidelines.

That could be even more true now because the price channel has been abnormally tight, with Bollinger Band Width recently hitting the lowest level in 5+ years.

AVGO isn’t the only chip stock in that’s been treading water as business remains strong. Taiwan Semiconductor’s band width recently hit the tightest reading in a year. TSM also just bounced at its 50-day SMA , a line that was resistance in April but is now support:

Both companies have also been straddling their 100-day SMAs . TradeStation data uncovered that Lam Research , NXP Semiconductors and Teradyne also touched that line on Friday. ( Qualcomm and Microchip Technology were at their 200-day SMAs .)

It’s an interesting time for the industry because catalysts like 5G upgrades and chip shortages remain in effect. Sentiment recently shifted away from cyclical stocks like industrials toward growth stocks like software. But interest rates leaped on Friday as cyclical stocks rebounded. More cyclical strength could draw money back toward chips (which often follow industrials). If that happens, these names resting along their 100- and 200-day SMAs could begin sustained moves.

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