I’ve said it before and I’ll say it again; risks still abound for Qualcomm, Inc. (NASDAQ:QCOM). But if the price chart is an accurate and forward-looking indicator, QCOM stock bulls are also in good position to continue 2017’s reversal of fortune. Let me explain.
By some measures or standards, you could say business is complicated these days at Qualcomm. On Tuesday, the company re-raised its bid for rival chip maker NXP Semiconductors NV (NASDAQ:NXPI) to roughly $44 billion.
The raise is an apparent effort to increase shareholder support for the merger, as well as deter Qualcomm stock’s own hostile bid as the targeted company.
In speaking to the press, Qualcomm officials emphasized NXP’s technology as a strong benefit in enabling the company to accelerate its growth strategy. But Tuesday’s bid may also force an unwanted $121 billion hostile takeover from fellow chip giant Broadcom Ltd (NASDAQ:AVGO) to be pulled. Bottom line, but possibly open to further negotiation, Tuesday’s new NXPI offer of $127.50 has crossed above a prior line-in-the-sand threat of $110 by Broadcom.
As noted, business is a bit complicated in Qualcomm right now. Then again, where there’s risk there’s also reward. To wit, the technical signs are looking increasingly favorable for bullish investors on the price chart of QCOM stock.
QCOM Stock Daily Chart
Despite dropping in reaction to Tuesday’s buyout news, QCOM stock is in decent technical position to move higher.
A lengthy and deep correction which concluded late last year with a bullish broadening reversal pattern has been followed by a flattish, lateral base consolidation of nearly four months while testing prior resistance and the 38% retracement level for support.
Net, net and given a solid finishing pattern, I’m technically inclined to see shares of Qualcomm stock move higher from here. One caveat, however, is an unsupportive stochastics setup presently. As well, I’d be wary if Tuesday’s bullish candlestick reversal was broken by more than 1% or below $61.25 in accounting for algo-driven wiggle room.
QualcommStock Long Bull Call Spread Strategy
Our last at bat in QCOM was a proverbial home-run using an intermediate-term long call strategy as shares bottomed back in September at the No. 5 point within the broadening pattern. Reviewing Qualcomm’s options for fresh ideas and given our technical assessment, I’m favoring the use of an out-of-the-money bull call spread which vastly reduces and limits risk while offering nice upside potential.
Specifically and with QCOM stock at $63.99, the May $70/$75 call combination for $1.30 is favored. Below $70 and a trader using this strategy faces a small loss of about 2.00%. But if shares hold the price pattern and go on to breakout to new highs by about 7%, a profit of $4 or 400% is possible.
And with increased gap risks for QCOM tied to an important shareholder vote in early March and earnings in late April, this call spread is even more of a deal-maker for bullish investors.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.
