After losing 30% over a difficult 15 months, Qualcomm stock’s correction appears to be near a welcome conclusion for bulls.
To the relief of many Qualcomm stock investors, Qualcomm has landed its Snapdragon 820 chip in some of Samsung’s soon-to-be-released Galaxy S7 after failing to have its predecessor, the 810, find its way into the Galaxy S6.
More Good News for Qualcomm Stock
Possibly more exciting, Qualcomm has been busy building its presence in developing, growth-filled areas such as the drone market, Internet of Things “IoT,” auto-infotainment systems and wearable technologies — all of which should help build future value in Qualcomm stock.
The recent acquisition of CSR for $2.4 billion, a foreign semiconductor and software solutions outfit, is one key driver to successful growth in a couple of these markets and why prospects are on the rise for Qualcomm stock.
QCOM also holds an enviable treasure trove of patents. Not only do those patents translate into royalty streams, but maybe more importantly, they support Qualcomm’s ability to innovate with less legal obstructions, helping ensure a stronger future for shareholders of Qualcomm stock.
For income investors, the QCOM dividend is now one of the more attractive shareholder payouts in technology. Currently, Qualcomm stock offers a dividend yield of 3.4% and sports an attractive, below-market forward P/E of less than 12.
Lastly, there’s another reason to not discount the $86 billion tech giant’s ability to rebound … namely, bullish support for Qualcomm stock’s price chart.
Qualcomm Stock Monthly Chart
Reviewing the monthly chart of Qualcomm stock, there’s mounting evidence of an intermediate-term bottom.
From the post-dotcom bust and Qualcomm stock’s 2002 bottom, a rally into 2014 resulted in gains of more than 600% and high near $82. Over the past 15 months, a correction of 36% is testing three key Fibonacci retracement levels for support, which appears to be holding.
Specifically, a 38% support level based on the 2002 cycle low and 50% retracement from Qualcomm stock’s November 2008 financial crisis low are in play as shown on the monthly chart.
Shares of Qualcomm stock have also completed a Fibonacci-based mirror move or two-step pattern where legs AB = CD from the 2014 highs and start of QCOM’s corrective phase over the last two years.
The tight band of three supports coupled with a tight, stabilizing monthly candle are affording bullish traders solid evidence of a low. We should note near $47 to $48 in Qualcomm stock and roughly 10% below the recent testing, there is additional technical support from an existing up-channel line and 50% level.
Qualcomm Stock Bull Call Strategy
A limited-risk bull call spread looks well-suited for positioning in Qualcomm stock. We anticipate the recent lows to hold, but in case of a technical failure, this type position allows traders to unequivocally define their risk compared to using a stop-loss in shares of QCOM.
Secondly, should the described lower support area come into play, a vertical spread trader should be in stronger position, financially and mentally, to consider a second attempt at bullish positioning in Qualcomm stock.
Looking at the Qualcomm stock options board, the November $55/$57.50 for $1.15 debit or less is one favored spread. The position costs less than 50% of an outright at-the-money $55 call and just more than 2% stock risk.
Option pricing of 28% during the November contract’s life suggests shares of Qualcomm stock will remain within $49.50 and $60.50 with 68% or a single standard deviation of confidence.
At the same time, the spread’s maximum return of $1.35 or 117% return on investment is occurs at or above $57.50 at expiration and is well inside the price range estimated by Qualcomm stock options traders.
Further, the spread includes Qualcomm stock’s November 4 earnings release to act as a catalyst. And should profits build and a bottom become more defined by expiration, traders may consider adjusting into a core stock holding and take advantage of an attractive QCOM dividend and more secure, future stock performance.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
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