The American multinational semiconductor and telecommunications equipment company that designs and markets wireless telecommunications products and services, Qualcomm, Inc. (NASDAQ: QCOM) seems to be poised for a decline in its price in the near term as per its latest charts.
#1 Head and Shoulders Pattern: As you can see from the daily chart below, the stock had recently formed a head and shoulders (H&S) pattern. This pattern is marked in orange color lines. A head and shoulders pattern is a bearish pattern and a breakdown from it usually indicates that the stock may move lower. Currently, the stock has broken down from the H&S pattern and could move down further.
#2 Bearish ADX and DI: The ADX and DI indicate bearishness. This is because (+DI) < (-DI); ADX and (-DI) are above (+DI); and ADX has started rising from below both (+DI) and (-DI). All these points to possible bearishness.
[hana-code-insert name=’adsense-article’ /]#3 Price below MAs: The price is currently below both 50-day as well as 200-day SMA in the daily chart, indicating bearishness.
#4 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color).
This typically indicates possible bearishness.
#5 Bearish Aroon: The value of Aroon Up (orange line) is below 30 while Aroon Down (blue line) is above 70. This indicates bearishness.
#6 Broken Uptrend: The weekly chart shows that the stock has broken down from its short-term uptrend.
The uptrend line is marked in pink color in the weekly chart below. A breakdown from an uptrend line usually indicates a bearish bias.
#7 MACD below signal line: The MACD line (blue color) is currently below the MACD signal line (orange color) in the weekly chart as well, indicating bearishness.
#8 Bearish Aroon: The value of Aroon Up (orange line) is below 30 while Aroon Down (blue line) is above 70 in the weekly chart too. This indicates bearishness.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level is if the stock reaches back to the breakdown level of the Head and Shoulders Pattern at around $55.50. However, there is a gap resistance near $53. So you can take short positions on half the intended quantity of stocks if the stock faces resistance at that level.
TP: Our target prices are $45 and $40 in the next 3-6 months.
SL: To limit risk, place a stop loss at $58 (for short positions near $55.50) and $54.50 (for short positions near $53.00). Note that this stop loss is on a closing basis.
Our target potential downside is 15% to 28% in the next 3-6 months.
- Entry near $55.50: For a risk of $2.50, our target rewards are $10.50 and $15.50. This is a nearly 1:4 and 1:6 risk-reward trade.
- Entry near $53: For a risk of $1.50, our target rewards are $8.00 and $13.00. This is a nearly 1:5 and 1:9 risk-reward trade.
In other words, this trade offers nearly 4x to 9x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the H&S pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
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