Qualcomm (NASDAQ:QCOM) has had an incredible ride this year. Earlier in the year, QCOM stock was up 50% year-to-date, but now it’s up only 17%. While this sounds like a disaster, it is still double that of the S&P 500, the Invesco QQQ Trust (NASDAQ:QQQ) and Apple (NASDAQ:AAPL).
Stocks that show relative strength in times of trouble are the ones that I like to bet on. Qualcomm is outperforming the markets despite the general sentiment and its own headline troubles. So it is like the bears are throwing the kitchen sink at it and the stock refuses to die. Imagine what it can do if the bad headlines abate.
If you’re already long Qualcomm stock, I suggest holding it. It’s also a good time to take an upside bet on it for 2019.
Fundamentally, it’s not cheap as it sells at a price-to-earnings ratio of 37, but this might be misleading here because of its potential future business with Apple. They recently reached a settlement where Apple becomes a QCOM client. While the deal is not yet set in stone because of outside factors, eventually it’s likely to happen. Even then, QCOM is not too bloated, so owning it for a trade here is not likely to be a major financial debacle.
In early May, I wrote about how investors should not panic out of QCOM because of the short-term volatility. But I also noted that “[t]he better entry points into the stock would be at pivot zones and those are at $80, $76 or $68.” We are at that opportunity now.
It had great momentum going into earnings but then dipped on the headline. Then this whirlwind of bad Wall Street sentiment took QCOM stock back to the bottom of the massive gap it left after the headline settlement with Apple. So those fast profits are now gone and this makes for stronger hands holding the stock.
Furthermore, there is a lot of premium that came out of all stocks, especially the tech industry, so there is much less overall froth in the system now than a month ago.
More importantly, yesterday we had a virtual bloodbath in the tech world where the FANG gang stocks collapsed. Stocks like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB) fell 8% on regulatory headlines. Even AAPL is now on the authority hit list.
How to Approach QCOM Stock Today
The good news for Qualcomm is that it was only down 0.25% when the Nasdaq QQQ was down 2.2%. QCOM again showed relative strength and further suggests that it has already shed most of its fat and that bulls are ready to support it at these levels.
These are still dangerous times for stocks for the short term. We are expecting new tariffs to hit Mexico in six days. The problem gets bigger when we see the other regulatory agencies also attacking the biggest and best U.S. companies. They are doing this while the U.S. is busy fighting a global economic tariff war. So clearly we have to assume that politicians have weaponized U.S. stocks to benefit their agendas.
Remember that the FANG gang has already declared war on China years ago when they pulled out of it. Instead of rewarding them, the U.S. government wants to punish them when they are most vulnerable, especially GOOG, Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB).
This saga is still ongoing, so we cannot assume that the absolute bottom is in. But true to my statement in early May, this here is definitely a viable tactical trade.
The legislators are unpredictable, so I don’t suggest taking full-sized bets all at once. Rather, I suggest doing it in tranches and keeping my stops tight. Also there are important lines to know for the short-term risk.
If the bears can break below $64.50, they could trigger another $5 sell signal. There the support zone is even stronger. QCOM here is near a confluence of pivot zones that date back to the dot come bubble. These tend to be magnetic, but nevertheless, the recent wild and wide moves make it difficult to set a functional stop loss level, so I’d use personal risk appetites.
Conversely, the bulls can use $69.30 and $72 as rally triggers, but they will likely need the help of the overall market sentiment to improve.
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