QualComm Returns To The Scene Of The Crime

03/09/05 08:11:48 AM

by Arthur Hill

QualComm (QCOM) broke double-top support with a big gap, and this broken support area has now turned into resistance.

Security: QCOM
Position: Sell

In my late December 2004 article on QualComm, I highlighted a number of bearish candlestick reversals and these bore fruit with a gap down and support break at 37.77. The bigger pattern at work is a double top, and the convincing support break confirms this pattern. The downside target is around 31 and this is found by subtracting the height of the pattern from the support break (~45 - ~38 = 7; 38 - 7 = 31).

The stock has consolidated since breaking support, and broken support turned into resistance. This is a classic tenet of technical analysis and often offers a second chance to sell or establish a short position. Note that there was a support zone (green box), and now there is a resistance zone (red box) at the same level. The stock failed at this resistance zone twice in February and looks poised to fail again in March. See Figure 1.

Figure 1: QCOM. The stock failed at a resistance zone twice in February and looks poised to fail again in March.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

QualComm needs to break above this resistance zone and start showing some positive money flow to get back on the bullish track. The February reaction highs confirm resistance and it would take a move above 39 to enter the gap zone and start showing some strength. In addition, note that 21-day Chaikin money flow has been in negative territory the entire year. This suggests that distribution is occurring within the consolidation. The indicator has improved somewhat with the recent move to -10%, but it would need to move above zero to show actual buying pressure.

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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DOUBLE TOPS

QualComm Returns To The Scene Of The Crime

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