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QUALCOMM, Inc. (NASDAQ:QCOM) has been struggling since mid-January when Apple Inc. (NASDAQ:AAPL) filed a $1 billion lawsuit claiming that QCOM was overcharging it for some of the chips it uses in its iPhones and not paying promised rebates. QCOM has also been the subject of unfair trade investigations by the Federal Trade Commission (FTC).
Things heated up recently when QCOM announced on April 28 that AAPL has threatened to withhold more royalty payments while the legal battle continues. If AAPL makes good on its promise, it could lead to a 20%+ decrease in QCOM’s quarterly profits. The future looks grim for QCOM.
While QCOM has been able to rise a bit since the April 28 announcement, we believe it has hit resistance at $56 — the price level that served as the neckline for the “head-and-shoulders” bearish reversal pattern the stock formed from mid-February to mid-April — and that the stock is going to drop back down to support at $52.50.
‘Buy to open’ the QCOM July 52.50 Puts (QCOM170721P00052500) for a maximum price of $1.30.
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