It’s the hottest stock in the S&P 500 this month. When the charts say it’s time to sell

Investors are grappling with what to do with a stock like Broadcom Inc. (AVGO) , which has seen a remarkably strong short-term rally within an already strong long-term uptrend. AVGO is the best performing stock in the S & P 500 month-to-date, with a gain of more than 30%. Several other semiconductor stocks help round out the top ten performers this month, which shows very concentrated leadership from stocks related to artificial intelligence. When trends steepen or “go parabolic” like AVGO’s, many investors cannot stomach a retracement back to initial support. For AVGO, the breakout point of approximately $1,438 is the first meaningful support, in our view, and it is about 17% below Friday’s close. So, what is one to do with a position in AVGO and other seemingly extended semiconductor or AI stocks? We can use simple technical analysis tools to help us identify when it may be time to reduce exposure, and therein help relieve the emotional attachment to a longtime winner. One metric we like to track is the 20-day moving average as a sell indicator. The 20-day moving average usually starts to roll over before support comes in-line. We have found that when it flattens after a steep upmove, it signifies enough of a loss of momentum to warrant partial reduction in exposure. This can be achieved by simply selling part of your position, keeping in mind any tax implications, or employing a hedging strategy. Another way to discern whether a significant pullback may be unfolding is by “watching the gap.” In steep uptrends that seem unstoppable like AVGO, we often see gaps up after strong upmoves that increase the probability of short-term trend exhaustion. Last week, AVGO gapped up, leaving a potential vacuum of support on the chart between about $1,653 and $1,506. Those who are sensitive to pullbacks might consider a stop-loss below $1,653 to manage risk that the gap is filled. Long-term investors in AVGO and other high-flyers like Nvidia may choose to ignore any loss of short-term momentum, noting that long-term momentum is still strongly to the upside. However, because the corrective phases can be dramatic, we would keep the technicals in mind for risk management. They can help us not only reduce exposure when it is timely, but also to return to a full position when the stock discovers support. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE 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. 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