“Trade of the Day” for Thursday, 10/17

Avago Technologies Limited (AVGO) is a $11.0 billion technology company that engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products.

We always seem to focus on what we want to buy and give very little thought to what we should sell.

Well, as traders, we should be thinking about selling when risks of holding begin to grow.

While there are many potential sell signals, one of our favorites is when long-term negative divergences begin to emerge.

A negative divergence does not guarantee us that the price will decline.

What it does, however, is alert us to the fact that the risk of holding is growing.

Tom’s Take: AVGO broke out recently to fresh new highs, but the daily MACD is much lower on this move – a sign of slowing upward momentum. Our experience is that many stocks like this will go through a period of selling to perhaps take the stock back to its rising 50 day SMA, effectively “resetting” the daily MACD to or near its centerline support.

— Tom Bowley, Invested Central

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Disclaimer: You should consider these educational charts and analysis for possible short-term trades only. We are not registered investment advisors and the Trade of the Day should not be viewed as investment advice. Accordingly, please check with your financial advisor before deciding to buy or sell any of these investment securities. Because we do not recommend holding a stock into its earnings report, please check all earnings dates on stocks featured before making a decision on whether to consider a trade. Invested Central’s staff may take long, or short positions in stocks, bonds, and other financial contracts on which they comment.

Tom Bowley, Invested Central

Invested Central Chief Market Strategist and StockCharts.com contributor Tom Bowley has taught thousands of traders around the world how to analyze the markets and make money trading.