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Trade of the Day

10/17/2013

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MARKET CONDITIONS

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.
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Action To 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.
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