BRCM's Direction

In a previous article, I wrote in detail about the historical wave count on BRCM and adjusted my trade according to my expectations, which were not clear at all, other than to say that a fast correction was possible. Later, the picture has been a little clearer, but ironically, the direction of the stock price is still unclear. I'll explain.

With my trade adjusted to neutrality at the peak of the market, I may be able to make some gains to the downside in the short term. However, if the stock quickly bounces up, I can also profit. With only a few days to Aug. expiration, I have to decide wether to rollover the short Aug calls (the short puts should expire worthless) to Sept. The number of contracts and the strike price for the new short is also part of the decision.

To review the historical analysis in BRCM, check my previous article.
http://stockoftheday.blogspot.com/2005/07/brcm-trade.html

Focusing on the more recent wave series of the last 52 weeks, the chart below should be helpful. Note in the chart below, that this sequence might be over, as the "y" wave, the last of a double 3 (d3) is itself a zigzag that started in April. However, as the chart forecast suggests, the "y" wave my extend as high as $62. For this to happen, "y" itself would have to be a double zigzag (dz).



If "y" is to complete as a double zigzag, the rally od the last few weeks would have to be corrected somewhat. The chart below projects this proposed correction to be between $33 and $40. I suspect that filling the gap to just below $40 should be enough, but I cannot predict with certainty. Perhaps other indicators such as oscillators, etc. may be helpfull once $40 is reached.



On the other hand, if "y" is truly over, then we could have a complete reversal of the 52 week trend and go back to the lows of April or even lower. I am showing here the 2 must likely scenarions using the Elliottician software named RET (Refined Elliott trader). Both of the counts have a high rating. If the first scenario is to take place, there will be a mild correction and a continued rally to $60. If the second scenario becomes a reality, BRCM will correct strongly.



I have arranged my trade to fit both scenarios for maximum profit. However, as we approach the Aug. expiration, A rollover to Sept. will become critical. If BRCM continues to decline toward $40, I could increase the number of short calls and let the puts expire. If the bounce scenario becomes more likely, I would probably short less calls but increase the number of short puts, making my trade more aggressively bullish. If BRCM accelerates its decline, I might not have to sell more puts, but I could certainly increase the number of short calls. Leaving the trade altogether, at this point may be timely too.