(QCOM) chart in trouble? Some think it is. But where do I stand?
The premise mentioned for a technical sell on this company is that Qualcomm should be sold, because it hasn't been able to take out its January highs. Last time I checked, the majority of stocks are well below their January highs.
In fact, the S&P 500
January high is 934.70, and now sits at 778.94 which is a drop of 155.76 or 16.66%. Qualcomm’s January high was $37.71 and closed Thursday night at $33.84 which is a drop of $3.87 or 10.26%. Clearly, Qualcomm is ahead of the S&P 500 when simple returns are calculated.
Erlanger Chart Room (or ECR) allows us to compare Qualcomm against the S&P 500, as well as its sector and group. The blue lines below are Qualcomm’s various relative strength measures, along with their 30-day exponential moving averages. All relative strength lines are moving higher and none have violated their 30-day exponential moving average. Qualcomm is still a leader on all fronts.
Another bearish argument suggests that buyers are on strike and sellers are emerging. The Erlanger Money Flow 20-day Advanced is persistently positive, as the Erlanger Positive Money Flow (blue) is well above its Erlanger Negative Money Flow (red). Sellers have not appeared from this measure.
Additional sell arguments were that Qualcomm is underperforming the semiconductors and NASDAQ. Again, the format from my first chart is used to compare Qualcomm against these other benchmarks. This stock is a leader, not a laggard.
Besides these studies, my firm tracks short interest, options activity and seasonality trends. Short sellers have been betting against this stock since late 2008, and clearly they haven't made money - and can be squeezed if the stock moves higher.
This potential short squeeze provides support. The Erlanger Short Intensity rank tracks the range of the short ratio (1.64) over time and currently it sits at 61%. The Erlanger Technical Rank remains strong at 90%.
This chart also looks at the Erlanger Put/Call Ratio and it is at 2.59 and climbing - which is bullish. In summary, there's excessive bearish sentiment from short interest and options activity. This should help Qualcomm stock climb a wall of worry.
The last core Erlanger indicator to review is seasonality. The chart below tracks the seasonal pattern since 1994. My confidence indicator, called the Cycle R, is high at 0.53 which statistically proves that the seasonal cycle for Qualcomm is valid.
The magenta line is my seasonality line for Qualcomm, and it's about to improve nicely into early April. The blue shading above the magenta line confirms this period is one of the best times to be long Qualcomm.
The next big seasonal test will appear in April. Until then, the seasonal heat (my colorized test for consistency of a strong or weak seasonal zone) favors Qualcomm.
A simple retracement analysis illustrates that the pullback seen is normal after a nice run from $28.16 to its high of $37.71. Qualcomm has broken below its 38.2% retracement but could be back above the 50% level, with a 0.22-cent move to the upside tomorrow.
For these reasons, Qualcomm has been on my weekly Type-1 Short Squeeze Report.
Position in QCOM
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