Stay Away from Qualcomm Stock for Now

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It has been said that during bear markets, correlation runs to one. Fundamentals and nuance go out the window, and the stock market becomes monolithic. The behavior in Qualcomm (NASDAQ:QCOM) stock provides a prime example.

Source: nikkimeel / Shutterstock.com

Today we’ll investigate its recent plunge and explain why QCOM is a tough buy as long as the Nasdaq is suffering from the coronavirus.

Follow the Leader

In all markets, tech stocks take their directions from the Nasdaq Index. Sure, some companies carve their own path and outperform or underperform the benchmark depending on just how loved or loathed they are. But they still carry some link to the movement of the overall sector.

As said above, however, it’s a connection that becomes much more powerful during market meltdowns. Since peaking on Jan. 17, Qualcomm stock has fallen 22%. The Nasdaq, meanwhile, is 18% off its highs. The day-to-day correlation between both tickers has been extremely high. Though the metric has receded a tiny amount, it reached 0.99 last week, showing that QCOM and QQQ are moving in virtual lockstep.

And I don’t see any reason why the strong connection will weaken any time soon. Volatility measures like the CBOE Volatility Index (CBOEINDEX:VIX) remain stubbornly high. Short-term corrections usually see a quick drop in the VIX and a rapid return of buyers into stocks. But not this go around. Not for the broader market, and not for Qualcomm.

Wednesday provided the latest evidence that bulls are in for a rough ride. Tuesday’s glorious rally completely unraveled, dashing hopes that a much-needed rebound was in the offing.

This is a long way of saying that most individual stocks are not being driven by their underlying fundamentals. Instead, they are being pushed and pulled by an all-powerful wave of fear.

Qualcomm Stock Charts

Source: The thinkorswim® platform from TD Ameritrade

On the bright side, this makes analyzing Qualcomm stock simpler. It’s unlikely to return to uptrending status until the Nasdaq does. Nonetheless, let’s take a look at the weekly and daily charts to identify exactly when the red light on QCOM will switch to green.

QCOM shareholders have traveled a path riddled with volatility in recent years. The rickety rise has really made it a tricky trend to ride. And the current crisis certainly hasn’t made it any easier.

The slide has torched multiple support zones and upended what was becoming a more consistent uptrend. At this point, the stock is firmly in bear territory beneath the 20-week and 50-week moving averages.

Source: The thinkorswim® platform from TD Ameritrade

Meanwhile, the daily chart has taken out the 200-day moving average, giving more reason for buyers to steer clear. We’ve yet to reverse the series of lower pivot highs and lows, suggesting that rallies remain suspect.

If you’re stalking Qualcomm for a buy, patience is warranted. For now, $82 is the level to watch. Until we work our way above it and turn the downtrend higher, I’d park yourself on the sidelines.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/stay-away-from-qualcomm-stock-for-now/.

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