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How to Trade the Dip in Qualcomm, Inc.

Tyler Craig

The modest uptrend cobbled together by Qualcomm, Inc. (NASDAQ:QCOM) over the past six weeks is under pressure. Such tests are inevitable anytime a stock stuck in a long-term downtrend attempts to overthrow its bearish overlords. While QCOM sellers are trying to reassert their dominance, buyers are trying to maintain their newfound foothold.

It’s a battle royale, baby!

Let’s begin with the big picture using QCOM stock’s weekly chart. It’s a practice preventing us from mistaking the entire forest for a single tree. Ever since January’s unsettling down-gap, Qualcomm has been locked in a downtrend.

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What’s particularly vexing to shareholders is the stock’s outright unwillingness to participate in one of the least volatile bull markets in history. While the Nasdaq continues to romance record highs, QCOM stock is wallowing in the mud.

Click to Enlarge Source: OptionsAnalytix

Since carving out a lower low in early-September, a multi-week rebound has taken root. But despite a valiant attempt by buyers, the weekly trend remains down. Notice how the rally was rebuffed by the falling 20-week moving average. That’s textbook downtrend behavior.

While the weekly chart remains firmly in the pessimistic paws of bears, the daily chart leaves some room for optimism. At least, if buyers can pass their current test. What appears a retracement on the weekly chart is actually a modest little uptrend on the daily chart.

The recent rally was strong enough to carry QCOM stock well above its 50-day moving average. What’s more, the previous two days of the surge were accompanied by high volume suggesting heavy participation.

Click to Enlarge Source: OptionsAnalytix

With the four-day pullback, QCOM is now testing its 50-day moving average. That means it’s put-up or shut-up time for bulls. If this nascent daily uptrend is going to go the distance and upend the weekly downtrend, buyers need to step up pronto.

The QCOM Trade

If the weekly downtrend has you skeptical of the stock’s current dip buy, then steer clear for now. For those willing to throw their lot in with bulls here’s an idea for you.

If QCOM can take out today’s high ($52.36), then buy the Dec $50 call for around $3.20. To protect yourself in case the bounce attempt fails, place a stop loss below $51. You’ll be out quick if the stock sours, but if the new daily uptrend can go the distance, this entry point is as good as any.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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