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TECHNICAL ANALYSIS


Moving Average Crossover = Fresh Rally In QCOM

02/28/07 09:29:17 AM
by Chaitali Mohile

A fresh upward move can be expected in Qualcomm.

Security:   QCOM
Position:   Buy

Moving averages show the direction of the rally. Though it does not indicate the direction of the trend, price movement can be determined. In QualComm (QCOMM), as seen in Figure 1, the 50-day moving average (MA) has crossed the 200-day MA upward. This crossover indicates that a fresh rally is about to start. The stock had been moving in a downward consolidation for a long time. A sudden surge in price increased the volume on the stock. The 50-day MA crossover will add strength to the rally.

The average directional movement index (ADX)(14) is at 38, indicating the developed healthy bullish strength and the trend stability. The relative strength index (RSI)(14) suddenly crossed 50 as the price moved. At current levels, the RSI is slightly overbought but not alarming, as it can remain overbought longer. Traders can thus go long on this stock. This moving average crossover ensures the fresh healthy rally ahead.

FIGURE 1: QCOM, DAILY. Moving averages are good indicators of a rally.
Graphic provided by: StockCharts.com.
 
As Figure 2 shows, QCOM has slid to $32.50 from $52.47. After this short-term correction, the stock consolidated at a lower level at a 38.20% retracement. This retracement gives the idea of a resistance level in the upcoming rally. These levels can also be seen as the next targets if the pullback is healthier. On the same grounds, after the 38.20% retracement level was crossed, the next resistance was also tested — the 50% level.

The ADX (14) above 15 shows the trend is developing and more buying pressure is coming. The RSI (14) is moving up. But as 50% level was tested, the RSI suddenly moved above 50, indicating the bullish strength in the rally. This scenario offers a buying opportunity at the current level. Traders can watch for the various retracement levels as their target for the upward rally. The current price level is also above 50-day MA. So along with 38.20% retracement level, the 50-day MA should also be watched as support for the rally.

Thus, the pullback rally on QCOM can be bought. The moving average crossover highlights such a pullback.

FIGURE 2: QCOM, WEEKLY. The retracement shows the various levels for a pullback rally.
Graphic provided by: StockCharts.com.
 



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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Date: 03/01/07Rank: 4Comment: 
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