I last wrote about upside potential in Qualcomm (NASDAQ:QCOM) stock in December. Then, it rallied 10% through earlier this month, so that was a good and immediate result. However, for the bulls who are not actively trading the stock and stayed in it, Qualcomm stock gave back the gains and is now back to about the same level of my initial note. This is becoming a habit with the stock, as it rallies into potential and then fades to give all of it back too quickly.
So, it’s clearly important to trade it, not just own it.
The opportunities from a swing-trading perspective need active management. Alternatively, and depending on the investor time frame, QCOM stock has a viable upside thesis for the very long-term. This is a proven winner, and they earned the benefit of the doubt. So, if markets are higher in the future, then it is likely that it will also be higher. However, the purpose of this pies is to assess the shorter-term potential of going into its earnings.
Qualcomm Stock Will Trade Off the Earnings Headline Soon
First of all, it is important to acknowledge that the short-term reaction to any earnings report is always binary. We don’t know what the company is going to say, and it’s even harder to guess how traders will react to the news. In the past year, Qualcomm stock is up more than three times as much as the S&P 500, and is now finally close to its all-time high from the dot-com bubble.
However, that also makes this level not able to be a clear and obvious entry point. But, that alone is not a reason to short the stock either.
For the past seven months, It has teetered around the $70-$80 range, and has had just as much action above or below it. So, the bulls can rely on the fact that there is support around there in case they need it. In fact, there is also support near $85 per share.
That said, dips towards either of those two lines constitute buying opportunities — as long as the overall macroeconomic picture doesn’t change dramatically.
In about a week, management will have the opportunity to impress Wall Street with their results. Clearly, it is important that they do not disappoint, especially on their forward guidance. On that front, the experts have high expectations, so they will be easy to disappoint.
The stock is still trading about $10 below their average price targets, so there is risk there if the message is not clear from management next week.
Outside Factors Are Less Noisy, but Some Risk Remains
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The United States and China have recently settled their differences and started the process of healing their relationship. This eliminated the tariff threat, but Wall Street has ways of finding new things to fret. So, caution especially when markets are near all-time highs is always necessary.
Meanwhile, if the QCOM bulls can break above $96 per share, they can trigger another leg higher and finally break the $100 mark where it failed during the dot-com era.
Conversely, if the sellers can break below $86 per share, they may be able to force it down another 6% or so from there. Assuming the worst and that management disappoints investors, the stock should find support around $73 per share. They had an emphatic move higher in April 2019 to reset the trading levels, and it would take shockingly negative news to take it back to those levels once again.
So, for those holding the stock already, there isn’t much to do here. And for those looking to get long the stock, Qualcomm stock is either a trading opportunity between now and earnings — or a gamble on the earnings reaction with the parameters we just noted. On the daily chart, I expect resistance going into $90 per share, but it’s not insurmountable.
The stock has been setting higher-lows and attacking resistance. And often enough, those favor the upside scenario. Nevertheless, though, it is a trend line that could fail.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
