I think that the key to understanding QCOM from an Elliott wave perspective is the rally from early August until Dec. 2. 2002. During that rally, which appears to have been impulsive and contain 5 waves, the stock nearly doubled in price.
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An impulsive rally will tend not to just stand alone, but to have a follow-through, which means that more often than not it will be followed by at least one more 5-wave rally. All of this is only probabilistic, of course, and the market will do what it will, but the odds are that such strength will beget more strength.
Now, let's move on and take a look at the decline since the December high. On the daily chart, it is easy to see that it contains many overlaps - and generally doesn't show the same powerful momentum as demonstrated by the preceding rally. All this would suggest that the decline might be a corrective pullback, and that the direction of least resistance may in fact be up.
Interestingly, in February-March the decline stalled at a 50% retracement of the preceding rally. Presently, the stock is dealing with the 61.8% Fibonacci retracement level.
The problem with a long position at this point is that it is hard to tell how far this decline will go. One line in the sand would be the 78.6% retracement of the August rally, which in this case would be near $27. When such a deep level breaks, often the move will just proceed further, beyond the previous price pivot.
I think that before entering a longer-term position it would be wise to wait for the price to show strength - and start creating overlaps with the previous minor lows. At the very least such a level would be the $33.50-34 area. Above that level it would make sense to try nibbling, but with stops. The next big challenge would be the trendline which connects the December and March highs. A very aggressive entry, in fact, might be actually here, where we are right now - but with a tight stop, which should be moved to a breakeven ASAP.
Friday's low of 30.74 is close to an important support. If the price falls to new lows, the prudent course of action, IMHO, would be to exit most or all of an (existing) long position - and wait for signs of strength before re-entering. |
