Drop in QUALCOMM Stock Price Presents an Opportunity
QCOM Stock Warrants Bullish Optimism
QUALCOMM, Inc. (NASDAQ:QCOM) stock has been battered following a suit filed by Apple Inc. (NASDAQ:AAPL), claiming that the company’s licencing practices constitute monopolistic behavior.
This news sent QCOM stock plunging 12.7%, and for good reason; it doesn’t take a rocket scientist to realize that Apple is a major player in the smartphone market and that it has its fair representation in QUALCOMM’s licensing revenues.
After examining the company’s stock chart, I have some potential good news to share with the bullish investment community. The QCOM price action, although not comforting, could still be within the context of a bullish trend that began in February 2016. If this view is correct, then the sell-off in QUALCOMM stock could be presenting an opportunity.
For anyone not familiar with my work, I use technical analysis as the basis of my investment views. Technical analysis uses historical price and volume data to discern trends and forecast future prices. I have been fine-tuning my skills in technical analysis for nearly two decades, and I have yet to find any other form of analysis that can compete with the timeliness and discipline that this approach preaches.
The following stock chart for QUALCOMM illustrates that, prior to the drop following the lawsuit filed by Apple, investors were given fair warning that the bullish trend was jeopardy.
Chart courtesy of StockCharts.com
The QCOM stock chart above illustrates that, prior to the sell-off that occurred in January 2017, a defined ascending channel contained the price of stock as it rallied off of the lows that were created in February 2016.
This ascending channel is completely uniform, with two parallel trend lines that define support and resistance. The price action within this channel was also consistent as QUALCOMM stock oscillated between these two trend lines, bouncing off levels of support and resistance.
The premise behind this pattern is that, as long as the price remains within the confines of support and resistance, the trend toward higher prices will continue.
In January 2017, QCOM stock fell below support, and this event was a warning sign which suggested that the trend toward higher prices was in jeopardy. A disciplined trading approach could have saved investors a lot of grief from the selling event that followed.
There is solace for the bullish investment community because there is growing evidence supported by the QUALCOMM chart that the current slide in the stock price has come to an end.
The following stock chart illustrates the significance of the price level where the stock found price support.
Chart courtesy of StockCharts.com
The QCOM stock chart above illustrates that the stock price found support on the top side of a downtrend line.
A downtrend line that began in July 2014 served to contain the price of QUALCOMM stock. This trend was characterized with lower lows and lower highs, which defined the bearish trend. This downtrend line is simply created by connecting the peaks on the stock chart, and its use is just as simple. As long as the price is contained beneath it, the trend remains bearish.
In July 2016, the stock price broke above this downtrend line, indicating that the trend toward lower prices had concluded. The fact that the stock has once again returned to this price level from above is not uncommon. This price action is referred to as a backtest, and this price action serves to reaffirm that the break above the downtrend was legitimate.
The fact that QCOM stock found support at this level suggests that the sell-off may have run its course.
The following stock chart illustrates a mathematical tool used by traders that supports the notion that the selling in the stock has run its course.
Chart courtesy of StockCharts.com
The QUALCOMM stock chart above illustrates the Fibonacci retracement numbers. This is a tool used by traders to identify counter-trend price objectives. The theory behind this mathematical tool is that once a stock completes its primary move, it will retrace approximately 50%–62% of that move before the primary trend reasserts itself.
The 50%–62% pullback has become such a popular tool among traders that they now refer to this pullback as “trading into the box.” The current sell-off in QUALCOMM shares has fallen directly into this box and, if a rally does ensue from this level, it means that the sell-off that occurred was in the context of a bull market.
The key takeaway from the price level where QCOM shares found price support is that two different methods suggest that this is a key area of support from which a rally can ensue. This level also defines risk at this moment in time. If QUALCOMM stock falls below $52.00, it would suggest that lower prices are set to prevail and it would completely remove the prospects of a continued bull market.
These factors provide the perfect ingredients to set up an appropriate trading strategy.
Bottom Line on QUALCOMM Stock
QCOM stock suffered a devastating sell-off following bearish news surrounding a pending lawsuit from a significant customer. This sell-off found support at the exact level that suggests that a bull market advance is still possible for the stock, as long as it continues to remain above it.
