QCOM Stock: War at Its Finest
There is a battle currently being fought with regards to QUALCOMM, Inc. (NASDAQ:QCOM) stock, and I’m not talking about court proceedings. Bulls and bears alike are fighting for position, and the QUALCOMM stock chart is their battleground.
I could try to analyze every detail regarding the disputes about licensing and royalty payments—or lack thereof—from companies like Apple Inc. (NASDAQ:AAPL), but I have found that the actual QCOM stock chart is much smarter than I could ever be, and it also provides many of the indications that I seek to create a view on this investment.
Using a company’s stock chart to generate an opinion on a potential investment is known as technical analysis. This method uses historical price and volume data to create a constructive opinion on the direction that a stock is heading in. This method is both an art and a science and, therefore, a ton of screen time is required in order to gain proficiency in this method of analysis. I have accumulated almost two decades of screen time, and even I still have many things to learn.
The following QUALCOMM stock chart illustrates the battleground where a fight between the bulls and bears is taking place.
Chart courtesy of StockCharts.com
The battle on the price chart began on January 23, following news that Apple had filed all the required paperwork to take QUALCOMM to court, claiming that the company’s licencing practices constitute monopolistic behavior. This news sent QCOM shares plunging by 12.7% on the day, leaving a sizable gap on the stock chart.
Gaps on a stock chart are significant indicators. They come in many forms—like breakaway, continuation, and exhaustion gaps—each having their own distinction as to what the gap indicates. The price action that follows is what usually sets these price gaps apart. At this exact moment, the price is being confined to an orderly channel and, as a result, I am having a difficult time placing a label on the type of gap that has just occurred.
This channel I described is created by using two horizontal trend lines that represent levels of price resistance and price support. This channel is where the battle is currently being waged, and the direction to which the QCOM share price exits this channel will dictate the next direction that the share price will take. Exiting the channel will also serve to solve the mystery of what to label a price gap that occurred on January 23.
If QCOM stock can successfully break above resistance, it will suggest that higher prices are likely to continue. This would also serve to suggest that the gap was an exhaustion gap, indicating that a selling climax had occurred.
If QCOM shares break below support, this price action would suggest that lower prices are likely to prevail. This would also serve to suggest that the gap in question was a breakaway gap, indicating that a new trend towards lower prices has begun.
There were brief attempts to break above both support and resistance, but each respective camp showed up in order to reject or further buying or selling. The stock price remains confined within the channel, and the battle rages on.
It was not a sheer coincidence that QCOM shares found price support where it did, and the following QUALCOMM stock chart will illustrate this notion.
Chart courtesy of StockCharts.com
The price chart above is using a mathematical tool known as the Fibonacci retracement numbers. This is a popular tool used among traders to define levels of price support. It’s not difficult to see that QCOM shares found support at the 61.8% retracement level.
The area highlighted in blue is labeled “the box,” which is the term coined by traders to describe a 50%–62% retracement. Technical theory suggests that when a stock has completed a primary move, it will retrace approximately 50%–62% of that move before the predominant trend reasserts itself. So, in theory, as long as QCOM stock is trading above the 62% retracement level, one could constructively say that this is just a regular pullback within a predominantly bullish trend.
One way or another, the channel that was illustrated on the first price will give way, and one side—either the bulls or the bears—will be crowned as the victors. Until that time, I will let the bulls and bears duke it out as I sit from the sidelines as a spectator to this battle playing out.
Bottom Line on QUALCOMM
QUALCOMM stock is trading within a price channel following damaging news that has since contained its price. Currently, the bull and bears are fighting within this channel. The direction that QCOM stock breaks out of this channel will dictate which camp will be the victor. At this moment, I am leaning slightly toward the bullish camp, because the stock price remains above the 62% retracement number.