Too Many Tails!

As I mentioned at the end of my column yesterday, Qualcomm Inc (QCOM) was scheduled to report its third-quarter results after the close Thursday. This morning before the open, ABN AMRO upgraded the stock from hold to buy and set a price target of $80. Needless to say, Qualcomm's earnings were better than analysts' expectations, and the stock gapped above its 50-day moving average at the open.

The chart below is a five-minute chart of Qualcomm from today's session. The red horizontal line indicates the level of the 50-day moving average. Shortly after the open around 9:45 a.m., the stock flashed its first sign of weakness. If you take a look at the bar, you can see it has a long upper tail. This was a clear evidence that aggressive sellers and profit-takers hit the stock. The very next bar is also troublesome. It too has an upper tail.

At 10:00 a.m., although it was small, Qualcomm formed another bar with a tail, and 25 minutes later, it shaped a bar with a tail again. Within 45 minutes, the stock formed the total of four bars with upper tails. It does not look good at all. Candlestick chartists call this kind of price formation "high waves," and this is a reversal pattern.

Unlike some other bars, tails are easily spotted on the chart, and they tend to signal the trend reversal. So, watch out for the tails.

Have a great weekend,

Eddie