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STATISTICS


Managing Qualcomm

11/01/11 10:08:21 AM
by Alan R. Northam

With Qualcomm in a newly established long-term bear market, it is time to manage this security looking for an opportunity to go short.

Security:   QCOM
Position:   N/A

Recently, I wrote a statistical analysis showing Qualcomm (QCOM) entering into a new long-term bear market trend ("Qualcomm Enters Bear Market," October 25, 2011). Once we determine that a security such as QCOM has entered into a new long-term bear market, it is time to manage that security, looking for opportunities to enter a trade. This article shows one way to manage this security.

Figure 1 shows the intermediate-term statistical analysis of QCOM. The bottom panel shows the daily price bars, the 50-day linear regression trendline (solid blue line), the lower one sigma channel line (dotted green line), the lower two sigma channel line (solid green line), and the lower three sigma channel lines (dashed green line). These three channel lines act as support to price with the lower three sigma channel line acting as the last line of support before price is free to continue trading lower.

FIGURE 1: QCOM, DAILY. This chart shows the daily price chart of Qualcomm in the lower panel along with its upsloping 50-day linear regression trendline, along with three levels of overhead resistance and three levels of support. The top panel also shows the linear regression slope indicator followed by the R-squared indicator. This chart shows that the price is currently in an intermediate-term uptrend.
Graphic provided by: MetaStock.
 
Figure 1 also shows the 200-day linear regression channel lines -- the upper one sigma channel line (dotted red line), the upper two sigma channel line (solid red line), and the upper three sigma channel line (dashed red line). These three channel lines act as long-term resistance, which the upper 3 sigma channel line, the last line of resistance before QCOM, reverses to a long-term bull market trend.

Looking at the lower panel of Figure 1, note that from early October onward, price has been trading between the lower one sigma 50-day channel line and the upper one sigma 200-day channel line. I have highlighted this area with yellow. Statistically, the upper one sigma 200-day channel line offers a stronger line of resistance than the lower one sigma 50-day channel line does a strong line of support. Thus, the probability is that price will continue to bounce off the upper one sigma 200-day channel line but will eventually break down below the lower one sigma 50-day channel line. Be aware, however, that probabilities are not guarantees, and thus, we must wait to see which direction price breaks out before we can make any kind of trading actions.

Looking at the linear regression slope indicator in the top panel of Figure 1, note that in early October this indicator moved above its zero line, indicating that the intermediate-term trend has reversed upward.

A look at the R-squared indicator in the next lower panel also shows that this indicator moved above its critical level in early October, indicating a strong intermediate-term uptrend.

It is now required for the linear regression slope indicator to move back below its zero line and the R-squared indicator to move below its critical level and then back above its critical level to indicate that the intermediate-term trend has reversed back down.

We have established that QCOM has entered into a new long-term bear market trend. This long-term trend will therefore stay in place until proven otherwise. We have also shown that more recently, the shorter intermediate-term trend is in the upward direction. With the main trend in an established long-term downward, shorter-term uptrends are considered to be corrective in nature. Our analysis has also shown that price is now trading in a tight converging range between the upper one sigma 200-day channel line and the lower one sigma 50-day channel line.

We also know that a breakout above the upper one sigma channel line will signal that the upward correction is extending higher and that a break below the lower one sigma channel line will indicate that price is starting to move lower. Once it has been established that price has resumed its downtrend, we can look at our trade indicators to signal a new shorting opportunity.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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