A Parade Of Bearish Candlesticks Confirm Resistance For Qualcomm

12/27/04 11:24:10 AM

by Arthur Hill

Qualcomm is pushing against resistance for the fourth time in three months, with bearish candlesticks forming on each test.

Security: QCOM
Position: Hold

Resistance between 44 and 45 extends back to mid-October for QCOM stock , which is when the first bearish candlestick pattern formed. The first red arrow points to a dark cloud cover pattern. This pattern was not confirmed, as the stock made another attempt to move higher two days later. This second attempt was greeted with a big bearish engulfing pattern (second red arrow). The bearish engulfing was followed by further weakness that established support around 38 (green arrow).

From early November to early December, the stock rallied back to resistance and then formed two more candlestick reversals. A shooting star formed on December 3 (third red arrow) and a bearish engulfing on December 16 (fourth red arrow). However, these have yet to be confirmed as the stock continues to trade near resistance.

Figure 1: Qualcomm. From early November to early December, the stock rallied back to resistance and then formed two more candlestick reversals.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

Moving average convergence/divergence (MACD) and volume patterns suggest that confirmation may come soon. MACD formed a negative divergence over the last three months and moved below its signal line. December volume shows that volume on down days is outpacing volume on up days (black arrows). Selling pressure is increasing and buying pressure is waning. Hmm.....

It ain't broken until it's broken. While candlesticks, MACD, and volume all point to an impending reversal, the stock remains above its first lines of defense. The trendline extending up from early November and the early December low have yet to be violated. A move below 42 would break both and confirm the bearish indications mentioned above. At the very least, a support test around 37-38 would then be expected. Without a support break at 42, the bulls still have the edge and a break above 45 would affirm the current uptrend.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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CANDLESTICK CHARTING

A Parade Of Bearish Candlesticks Confirm Resistance For Qualcomm

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