Qualcomm Inc (QCOM)

[IceRich]

DUMB LUCK INVESTOR: Learning Technicals the Hard Way


By Peter D. Henig, Optionetics.com
5/9/2003 9:00:00 AM

Three years ago I thought I was a very rich guy. I had what amounted to 1000 shares of Qualcomm (QCOM) when the stock was trading at $140 per share. (It had just split 2-for-1 when Qualcomm was soaring into the stratosphere at $280 per share.) I wasn’t Bill Gates rich, but like most other investors, I was smiling.

Little did I know hanging onto those shares would soon make me feel far more like Zero Mostel in Fiddler on the Roof. Qualcomm sunk heavily to ultimately trade in the low $30 range and, though I sold off many shares, I had still kept some to remind me of just how much I liked the stock.

Qualcomm’s CDMA technology for mobile chips has always made sense – with its ability to convert voice into data for easy transmission – keeping me a believer in the company even as the stock has steadily drifted from the upper left corner of the screen to the lower right. If I were a technical analyst I would have sold long ago, but as a fundamentalist, I hung on tight. I was also emotionally attached to the stock – a very big mistake! This was my stock, I thought. I wanted to own it. Now I think twice.

A Mixed Bag

The experience on the way down has offered several lessons in paying as much attention to the charts as to the fundamentals, particularly now that Qualcomm suffers from further lackluster performance.

Investment firm Moors & Cabot just downgraded Qualcomm from Sector Outperform to Sector Perform for a variety of reasons including: increased competition from Texas Instruments in CDMA technology; sluggish international demand for CDMA chipsets which has bloated inventories; margin pressure from competitors Nokia (NOK) and Samsung; and Wall Street forecasts for earnings which may still be too high. Add in additional bearishness surrounding fallout from the SARS epidemic – China represents one of Qualcomm’s fastest growing markets – and many investors have chosen to steer clear of the company.

As a result, Qualcomm represents the latest case of whether to remain a believer in the long term potential of a favored company (particularly a high-tech one) or bail out based on soft – and softening – short term technical indicators.

Technical analysis trading website, StockConsultant.com, describes Qualcomm’s technicals this way, “Possible breakdown below $30.53, no support in area just below.” With an initial downside target of $28.34, StockConsultant.com says the chances of Qualcomm reaching that level are “excellent”, with the next target on the downside being $26.67. The path of least resistance, in no uncertain terms, is clearly lower.

Which Way Did It Go?

Investors would have a right to be confused.

At a time when the tech slump appears to be bottoming, when the market itself is showing momentum to the upside and when bellwether companies like Dell (DELL) and Cisco (CSCO) are proving that strong earnings remain possible even within the high-tech industry, Qualcomm’s market action is almost at odds with itself; market action which at once represents post-war market confusion and economic uncertainty, sandwiched between bullish longer term fundamentals and lousy shorter term-technicals. Currently, the technicians are winning.

Should Qualcomm investors stay the course, seeing beyond the static of technical indicators into a future confirming strong market opportunities and growth? The rub here is that little of that long term bullishness is supporting the stock. As StockConsultant.com points out, according to the charts, there’s even less further support beneath current share price levels.

Despite estimates forecasting that 20 percent of cell phones will be using Qualcomm’s CDMA technology by the end of this year, that sales will rise by 33 percent in 2003 and earnings will increase by 42 percent, technicals are now governing a market in post-war confusion. On the upside, momentum is carrying some stocks higher. On the downside, bears are still at work where support levels are weak or absent.

In other words, despite advice that it might be safe to jump back into stocks as they trade with a bias to the upside, investors should be careful not to jump into certain stocks too soon. What support should be there may simply be mere promises of better times farther down the road.


Peter D. Henig
Contributing Writer and Trading Strategist
Optionetics.com ~ Your Options Education Site

http://www.optionetics.com/articles/article_full.asp?idNo=8318