2026 has been a remarkably volatile year for semiconductors. In the last two weeks, we witnessed a brutal chip rug pull that caught many off guard, sending high-flying names into a sharp correction. However, as I detail in my book, Mean Reversion Trading , I am a firm believer in the premise that a rising tide lifts all boats. With the broader tech sector attempting to stabilize and chips showing early signs of recovery, I am looking closely at Broadcom (AVGO) for our next setup. While the chart is showing some promising footprints, we need to be incredibly careful about jumping the gun. I am relying on three of my favorite technical signals to evaluate this trade: Accelerated MACD (5, 13, 5): I prefer this faster MACD setting to catch momentum pivots before the rest of the market wakes up. As highlighted by the white circle on the chart, the MACD indicator is currently tightly coiled. While this can sometimes precede an explosive move, a coiled MACD often leads to false positives. We might be a bit early here, which is exactly why we must use other indicators for confirmation. Relative Strength Index (RSI): To gauge the underlying strength of this bounce, let’s look at the RSI. Although it is slowly moving up (currently sitting around 44.7), the line remains relatively flat. It has not yet shown the sharp upward trajectory needed to aggressively confirm that institutional money is flowing back into the stock. Directional Movement Index (DMI): The DMI is my go-to for assessing the internal health of a trend. Fortunately, we are seeing the directional lines begin to change course. As the arrows on the chart indicate, the red line (sellers) is hooking down and the green line (buyers) is hooking up. This convergence is a very encouraging sign, providing the first footprint of a structural trend change and indicating that the selling pressure from the recent rug pull is finally exhausting itself. The trade setup: AVGO 370-375 bull call spread Because the MACD is coiled and the RSI is still flat, deploying capital right this second carries unnecessary risk. Waiting a day or two to let the momentum build up is the smartest move. As the old trading adage goes, “waiting is your insurance for being right.” Giving the setup 24 to 48 hours will tell us if this signal is real or just a dead-cat bounce. If AVGO confirms the breakout, I will target an At-The-Money (ATM) bull call spread based on the current price. Even if waiting means we have to construct our spread at slightly higher strikes, paying that small premium for confirmed momentum is always worth it. You simply wrap your strikes around the live price (buying the ITM call and selling the OTM call) once the indicators give the definitive green light. If tracking these setups manually isn’t your style, Maya (our trading algorithm) handles entries and exits completely autonomously using a 100% rules-based system. We are running a soft launch right now, so you can lock in our $47 launch offer here . Here is my exact trade setup (based on current price of $373.90): Buy $370 call, Aug 7th expiry Sell $375 call, Aug 7th expiry Contracts: 1 Cost: $250 Potential Profit: $250 — Nishant Pant Founder: https://tradewithmaya.com/ Author: ” Mean Reversion Trading ” Youtube, Twitter: @TheMeanTrader DISCLOSURES: None All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE 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.
A breakout in Broadcom may be forming. How to trade it if it materializes
