Qualcomm Nearing Historic Test of 2000 'Bubble' High

Qualcomm Incorporated (QCOM) is finally nearing a historic test of the 2000 bubble high following an 18-year "bounce" that started in the low teens at the end of the bear market in 2002. The vast majority of big tech stocks have already mounted this ancient signpost, generating much stronger long-term returns than the San Diego-based digital communications giant. A breakout could finally lift this perennial cloud, allowing Qualcomm stock to roam freely in the triple digits.

The company became poster child for the internet bubble in December 1999 when PaineWebber Group analyst Walter Piecyk made market history, initiating coverage with a $1,000 price target. The stock was trading near a pre-split $350 at the time of the call and topped out at $400 just two sessions later, giving way to a three-week 47% freefall that warned investors the tech bubble was about to burst.

It took nearly a decade for Qualcomm to shake off the bearish sentiment generated by that incident and its aftermath, which were frequently recapped on the financial pages as an example of that era's financial excesses. The stock has had better luck so far this decade, but the 80% nine-year return is far lower than the majority of big tech rivals that have lifted the Nasdaq 100 index into a series of all-time highs.

QCOM Long-Term Chart (1991 – 2019)

The company came public at a split-adjusted 55 cents in 1991 and entered a steady decline that posted an all-time low at 39 cents in 1992.  A rally into 1994 stalled above $2.70, marking a peak that resisted multiple breakout attempts between 1995 and the first quarter of 1999. The stock then took off in a vertical uptrend, posting historic gains into January 2000's all-time high at $100.00, ahead of a downturn that relinquished 47 points by the end of the month. It broke support at the low in the second quarter, confirming a downtrend that finally ended at $11.60 in August 2002.

A sturdy bounce into 2006 stalled at January 2000 resistance in the low $50s, while a 2008 breakout attempt failed, yielding an orderly downdraft during the economic collapse followed by a strong recovery wave that completed a 100% retracement into the 2006 high in 2011. The subsequent breakout booked respectable gains into 2014, when the rally ended at the .786 Fibonacci retracement of the broken internet bubble.

The stock tested support at the 200-month exponential moving average (EMA) four times into February 2019 and turned sharply higher into the second quarter, mounting resistance at the 2014 high in April and pulling back. It lifted above that peak about two weeks ago, posting a 19-year high at $94.11, ahead of a downturn that has now filled the Nov. 7 gap. The 50-day EMA has narrowly aligned with the .786 retracement in the low $80s, marking the line in the sand for this test of support, with continued downside signaling a failed breakout.

The monthly stochastics oscillator crossed into a buy cycle from the oversold level in February 2019 and still hasn't reached the overbought level. This benign placement gives bulls a modest advantage in the ongoing test, raising the odds that committed buyers will emerge and lift price above this month’s high. Given the binary stakes, the majority of sidelined investors should just sit on their hands for now and let other market players decide Qualcomm’s fate.  

QCOM Short-Term Chart (2016 – 2019)

The .786 Fibonacci retracement level marks a high-odds turning point for bounces that follow long-term downtrends. The stock hit that harmonic level in 2014 and is still testing the April 2019 breakout, with confirmation favoring a rapid trend advance into the 100% retracement at $100.00. In turn, this well-organized structure highlights the importance of current price action and its long-term impact on Qualcomm's outlook.

The on-balance volume (OBV) accumulation-distribution indicator ended a major distribution phase in early 2016, giving way to steady buying interest that reached the 2014 OBV peak in the summer of 2018. It broke out above this level in April 2019 and has held that lofty ground for the past seven months, adding another reason why bulls should prevail in coming weeks and set the stage for a historic test of the all-time high in 2020.

The Bottom Line

Qualcomm has broken out above the last resistance level before the 18-year uptrend finally reaches and tests 2000's all-time high at $100.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.