Shares of semiconductor and related stocks came under pressure on Monday, October 11 as a broad-based sell-off pulled stocks lower. Semiconductor stocks such as Qualcomm, Inc. (NASDAQ:QCOM) have been on an amazing winning streak off the February lows, but over the last few weeks have increasingly looked overbought. Although QCOM stock is in a constructive long-term position, chasing it higher at these near-term levels looks to have weak risk/reward and more aggressive traders may play the stock to the short side for a trade.
As I often highlight in this daily column, price action trumps any other ‘indicator’ or fundamental analysis for that matter, particularly in the more liquid mid- to large- capitalization stocks.
However, when technical indicators match up with price action, then often times one can get even higher probability trading signals. In my eyes this is what is currently taking place on the charts of QCOM stock.
QCOM Stock Charts
The price action in Qualcomm stock over the last two years or so has been anything but a one-way street: After topping out in the summer of 2014, a precipitous sell-off began. This selling spree did not end until this past February, or about 50% lower; the rebound since has been very sharp and from a technical perspective, resulted in a new intermediate-term up-trend.
While one can draw lines on charts in an infinite number of ways, on the multi-year chart below, I chose to draw the black diagonal for perspective. Two weeks ago, QCOM stock overcame its red 200-week simple moving average, a moving average that it has not traded above since the summer of 2015.
All else being equal, the longer the stock can consolidate above this moving average, the better for the bulls. However, if Qualcomm stock pulls back below this line soon, and thus leaves a notable bearish reversal on its weekly chart, the better the odds are that a more meaningful pullback is underway.
Note that — from a momentum perspective — QCOM stock’s MACD oscillator currently rests at levels last seen in 2011. This does not mean that the stock has to fall apart from here, but it does suggest that at the very least, a pause in the rally looks to be the path of least resistance.
On the daily chart, we see that on Sept. 29 Qualcomm stock had a sharp rally that broke it out of a multi-month sideways consolidation phase. However, that rally was short lived and since then, the stock has stalled and my B2 Reversal Indicator has given me two sell signals, as marked by the two red arrows.
The Sept. 29 rally also pushed the stock toward the upper end of the year-to-date up-sloping range. From here, reward on the upside in QCOM stock looks to be less than favorable for the time being and active investors and traders could even look to short the stock against the recent highs around $70, using a first downside price target near $62 to $62.50.
Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.
