From “sell the news” theatrics to “buy the news” clarity, Qualcomm, Inc. (NASDAQ:QCOM) is a name best left for others to worry about. With that said, today we’ll look at whether the best option for right now is to buy QCOM stock, sell or some combination in between.
Back in late April, on the heels of a successful bearish position, we posited that the bears could continue to make money on Qualcomm. Supporting our view was increased, expensive litigation over potentially unfair business practices tied to Qualcomm’s lucrative licensing model was in focus.
A fair-sized chunk of the company’s revenues from key customers Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co Ltd (OTCMKTS:SSNLF) are potentially at risk and could jettison the claims of value-seeking bullish investors at any moment.
For its part, Apple already had its lawyers in position with sleeves rolled up. The tech giant and world’s largest company filed a $1 billion damages lawsuit back in January. That news didn’t go over too well with Qualcomm shareholders, as QCOM stock tumbled more than 12%.
But then a funny thing happened.
News of Apple flexing its muscle in late April and announcing it was suspending royalty payments forced Qualcomm management to cut its own outlook, and that ended up backfiring on those who were short the stock.
At the end of the day, Qualcomm’s reaction amounted to investors voting in favor of clarity. And, maybe the news wasn’t as awful as feared.
It wasn’t perfect, of course. Nothing is when it comes to chart. In fact, I was cognizant that the handle could be interpreted as a smaller three-month double bottom, complete with bullish hammer.
But I was willing to call a spade a spade. A mostly bearish QCOM was stationed firmly in bear territory and faltering at the key 62% retracement level. But was it a spade, or were the bears played?
Only a couple days later the bears (and hammer-seeking bulls) had their eyes opened in the form of a massive bullish engulfing candle. The price action occurred despite the seemingly troublesome news of suspended royalties and reduced guidance.
Whether bears liked what they saw or not, respecting the convincing heavy volume reversal made sense in our estimation. That was a good reason to assess any short position.
Bottom Line on QCOM Stock
Currently, I’m not confident shares are a long for either shorter-term traders or longer-term investors. But nor do I see sufficient evidence, either off or on the price chart, to support shorting and fading Qualcomm’s rally.
Our position right now? Watch. It’s a lot safer than buying, selling or even trying to trade Qualcomm right now.
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.