From the hot seat to catbird seat, it’s time to take profits in Qualcomm (NASDAQ:QCOM). Investors would be wise to step to the side and let overzealous momentum traders be left holding the bag in QCOM stock in the near-term. Let me explain.
As recently as late May Wall Street’s jury had weighed in on QCOM stock and the verdict was there’d be more trouble ahead for Qualcomm shareholders. On the heels of a favorable settlement in April against Apple (NASDAQ:AAPL), along came a surprise and unceremonious opposing verdict citing Qualcomm’s chip licensing patents business violates Fair, Reasonable and Non-Discriminatory (FRAND) standards.
On the surface it didn’t look good and the response from investors was decisive. Qualcomm shares were slammed lower by roughly 15% in the immediate aftermath. The price action also gave back more than 75% of QCOM stock’s gains on the back of the Apple decision.
My analysis was a deep dive into the price chart. The belief was that bullish investors, along with lawyers on the clock appealing the decision, were bound to be very happy campers in a “same as it ever was” environment for Qualcomm shares.
Five months later, and with QCOM shares up 40%, Wall Street is suddenly waking up to life beyond Apple and to Qualcomm’s market-leading 5G prospects, going so far as to aggressively bid a decent, but mixed earnings report.
Today’s bullishness has this strategist concerned in the short-term. Given a technically questionable monthly chart, I’m appealing to investors to take profits and wait for stronger buying opportunities in a catbird seat of a company as InvestorPlace’s duly Mark Hake noted last week.
QCOM Stock Monthly Chart
The monthly chart of QCOM below reveals that shares have formed a more-bullish leaning channel in 2019 after breaking out of a similar, but less aggressive pattern of about three years in duration in January. Qualcomm stock’s stochastics looks supportive overall. However, as shares are testing channel and Bollinger Band resistance, buying on weakness within the trend versus purchasing momentum at all-time-highs is preferred.
QCOM Stock Trade
If QCOM stock begins to pull back, shares maintain a strong support zone from about $75-$80. This area is backed by Fibonacci cycles tied to the January and May low, as well as the lower channel line. Shares would also need to drop roughly 20% before a test occurs. That may be asking too much.
Closer to the current Qualcomm stock price, another support area from approximately $83-$86 can be monitored for buying. This zone is comprised of QCOM’s prior closing and opening highs from April and May, as well as 38% and 50% Fibonacci supports tied to the October pivot low preceding November’s strong rally.
Bottomline, QCOM stock has a lot going for it off and on the price chart, but buying shares today is prone to unnecessary trade risk. My advice is for investors to watch the aforementioned zones for testing in the weeks ahead and price confirmation of a bottoming candlestick on the weekly time frame for timing a stronger position in shares.
Disclosure: 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.