Ask The Trader
Wednesday, February 07, 2001
Question On Qualcomm
May I have your opinion on Qualcomm. It seems to be trying to make a comeback.
Qualcomm, Inc. (NASDAQ:QCOM), the darling of 1999, has since come back to earth. Well, depending upon how you look at it, the stock has at least come back to the moon. The company's P/E ratio, currently sitting at 629, is still in the upper stratosphere and leaves little or no room for slippage in growth.
While I can't argue that QCOM is up substantially from its July 2000 low of $51.50, the stock is moving higher in a questionable fashion that makes me wonder if QCOM would be a better short here than a long.
Turning to the chart, we can see a classic head and shoulders top forming. This formation usually portents a price target on the downside that is equal to the height of the head formation. In this case QCOM could fall to $106-66= $40.
I would also like to point out that volume has been steadily dropping on each of the three rally attempts, a sign that buyers are loosing conviction. The MACD is about to go negative and in addition (I couldn't show it because it would clutter the chart) the stochastic is rolling over from overbought territory.
Please note that the head and shoulders top will not be complete until we see a break in the neckline at about $70, but it sure looks like the digital wireless provider is heading in that direction.
Good Luck and Have a Profitable Trading Day