While Apple (AAPL) and several of its suppliers have muscled higher this week, thanks to pre-earnings optimism and a positive Apple earnings reaction, the shares of Broadcom (AVGO) have struggled. The company on Monday cut the top end of its current-quarter revenue forecast, citing weak wireless chip demand, and AVGO shares are now testing familiar support. However, if recent history is any indicator, AVGO stock could be due to bounce in the short term.
Broadcom stock was last seen 0.6% lower to trade at $228.89. The $228-$230 neighborhood has emerged as a key foothold for AVGO in 2018, containing the equity’s pullback amid the early February stock market correction, and acting as a cushion during last month’s semiconductor swoon. This area also provided a floor for AVGO in late 2017, when the shares were on their way to November’s record high.
What we found interesting, from a historical data standpoint, is that AVGO has been among the best S&P 500 stocks to own in the month of May. The Apple supplier has ended the month higher 88% of the time, looking back 10 years, and averaged a healthy gain of 8.51% — the second-best of all SPX stocks — according to data from Schaeffer’s Senior Quantitative Analyst Rocky White. From current levels, a similar rally would put Broadcom shares around $248.37 in no time.
If history does repeat for AVGO, an exodus of recent option bears could add fuel to the stock’s fire. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 10-day put/call volume ratio registers in the 74th percentile of its annual range. This indicates a healthier-than-usual appetite for bearish option bets over bullish during the past two weeks.