Qualcomm Needs Strong Earnings to Regain Its Momentum
Qualcomm (QCOM) - Get Report is an old-line semiconductor company and component of the PHLX Semiconductor Index, known as the SOX. Qualcomm had strong upward momentum until July 2014, then stumbled into a negative "death cross" two months later.
After declining into bear market territory, the stock has had a solid recovery. This rebound will be put to the test when the company reports its fourth-quarter earnings after the closing bell on Thursday.
Analysts expect Qualcomm to earn of 71 cents a share. TheStreet Ratings gives Qualcomm a hold rating. One proplem is some of the company's digital communications products and services are sold in China, South Korea and Taiwan where economic growth is lagging.
Shares of Qualcomm have been outperforming the SOX so far in the fourth quarter, but lag dramatically year to date. Let's take a look at the weekly chart for the SOX.
Courtesy of MetaStock Xenith
The PHLX Semiconductor Index closed at 668.53 on Monday, up 10.9% so far in the fourth quarter and down 2.7% year to date. The SOX is in correction territory 11% below its multiyear high of 751.21 set on June 15. It is currently at 668.31
The weekly chart shows the Fibonacci retracement from its November 2008 low to its June 2015 high. The SOX set its 2015 low of 543.03 during the flash crash of Aug. 24. This low lines up with the October 2014 low and the pre-crash of 2008 high of 559.60 set in January 2006. The 200-week simple moving average in green at 530.56 is another key level to hold which lines up with the 38.2% retracement of 528.49.
Here's the daily chart for Qualcomm.
Courtesy of MetaStock Xenith
Qualcomm, now at close to $61, closed Monday at $60.64, up 12.9% so far in the fourth quarter and down 18.4% year to date. The stock is in bear market territory 26% below its multiyear high of $81.97 on July 23, 2014. The all-time high of $100 was se in January 2000.
The stock began 2015 under a "death cross" on Sept. 11, 2014, when the stock closed at $76.11. A "death cross" indicates that lower prices lie ahead and this signal tracked the stock lower.
Qualcomm actually beat earnings estimates in each of the three reports released in 2015 that were followed by negative reactions. The first is shown by the price gap lower on Jan. 29. The stock stayed below its 50-day simple moving average on April 23 following earnings. A rebound following its earnings released on July 29 also failed below its 50-day simple moving average.
The stock tried to rebound from its Aug. 24 low of $52.59, but could not as a lower low of $52.17 was set on Sept. 29. Since then the stock has been in rally mode with the stock in the midst of a wide range between its 50-day simple moving average of $56.43 and its 200-day simple moving average of $64.69.
Here's the weekly chart.
Courtesy of MetaStock Xenith
The weekly chart is positive with the stock above its key weekly moving average of $58.86 and well below its 200-week simple moving average of $67.23. The weekly momentum reading is projected to rise to 54.15 this week up from 44.93 on Oct. 30.
Momentum scales from 00.00 to 100.00, with a reading below 20.00 oversold and a reading above 80.00 overbought. A rising reading above 20.0 is positive while a declining reading below 80.00 is negative. This study is shown in red along the bottom of the chart.
The weekly chart shows the Fibonacci Retracement from its late-2008 low to its July 2014 high. The 50% retracement of $55.11 was a magnet at the Sept. 29 low and lines up with the pre-crash of 2008 high set in August 2008. The pre-earnings high of $61.19 set on Oct. 23 is below the 38.2% retracement of $61.45.
Investors looking to buy Qualcomm should place a good till canceled limit order to buy the stock if its drops to $52.64, which is a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $70.64, which is a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.