Too Many Tails!

July 27, 2001
Eddie Kwong

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.