Increasing difficulties off and on the Qualcomm, Inc. (NASDAQ:QCOM) chart suggests it’s time for bearish traders to reload positions in QCOM stock with another well-positioned and limited-risk wager on lower prices ahead. Let me explain.
Back in early March this strategist discussed fading a rally in QCOM stock inspired by product ties to Microsoft Corporation (NASDAQ:MSFT) and its cloud platform. Ultimately, investor cheer seemed more of a temporary fleecing of bears within Qualcomm’s larger trend of serial disappointment for investors.
A handful of weeks later, shares are lower and our presented spread captured its full profit potential of more than $2 for a return approaching 450%. But in our estimation, the bears aren’t finished yet beating up on QCOM stock.
Truthfully, it can be tough to call a spade a spade at times. But worse is not listening to the market. And in the situation of Qualcomm stock, investors are saying it’s a company in increasing trouble and one not likely to simply bounce back from here.
Most of Qualcomm’s problems, as InvestorPlace’s Tom Taulli recently noted, stem from the company’s lucrative licensing model. It’s one which finds itself battling increased and expensive litigation aimed at proving Qualcomm is “engaging in unfair practices”; and it appears to be gaining traction at QCOM stock’s expense.
If you think this is a small matter, think again. As also addressed, a full 40% of Qualcomm’s revenues come from just two customers — Apple Inc. (NASDAQ:AAPL) and Samsung Electronic (OTCMKTS:SSNLF). Bottom line, if anything was to happen with either golden goose, a discounted and inexpensive-looking QCOM stock sporting a nice dividend could actually wind up a very poor investment.
Lastly, considering Apple isn’t just sitting idly by and has already filed its own lawsuit for $1 billion in damages against Qualcomm’s business practices, it’s our view the case against a fairly bearish-looking QCOM stock chart is building and worth respecting as well.
QCOM Stock Daily Chart
Back in early March, I wrote about QCOM stock’s technical price action as taking on the shape of a bearish flag pattern following a large and technically destructive loss. There was some evidence to support the bull case, but I personally didn’t have enough reason to think a bottom was in.
It turns out after a modest bump higher, the MSFT story fell to the wayside and so did QCOM shares. Now, with shares roughly 9% lower, I still don’t believe Qualcomm has bottomed.
Sure, when looking at the provided daily chart of QCOM stock one might optimistically point to last week’s hammer low, a double-bottom pattern and oversold stochastics as reason to think shares could reverse higher from here. But much like last time, I remain wary and see lower prices ahead.
First, the trend in Qualcomm is down, I think even bulls can agree on that point. Second, QCOM stock is also firmly in bear territory below the 200-day simple moving average and without having the appearance of being oversold, despite what the stochastics indicator suggests.
As well, Qualcomm shares have seen recent and convincing signs of distribution and are faltering below the 62% retracement level. Chart readers might even want to consider the implications of an inverse cup-with-handle pattern. Net, net and where compromise is always a part of the game, the benefit of the doubt continues to side with the bears in QCOM stock.
Qualcomm Bearish Long Put Strategy
Given QCOM stock’s options are as cheap as anytime in the past year and in lieu of our bearish view expressed above, I like purchasing the June $50 put for up to 70 cents with shares around $53.
Aside from premiums being affordable right now, the June contract gives the trader some time for confirmation of lower prices before the out-of-the-money put might collapse if it fails to go in-the-money.
Personally, I’d look to use an extra layer of protection and exit if the put loses 50% of its value. Likewise, should QCOM begin to move favorably lower, looking to adjust and reduce risk or take profits is always good protocol with a long put strategy like this.
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.