Qualcomm Inc. (QCOM) shares fell more than ten percent during Wednesday session after U.S. District Judge Lucy Koh sided with the Federal Trade Commission in an antitrust lawsuit alleging that the chipmaker surpassed competition and used its dominant position to exact excessive licensing fees for cellphone chips.
The company generates most of its revenue from licensing technology that it patented years ago enabling cellular phones to connect to cell towers. Phone makers have been paying these licensing fees for years, which can add up to as much as $400 per device and is often passed on to consumers.
Qualcomm responded by saying that it ‘strongly disagrees’ with the ruling and will immediately seek a stay of the district court’s judgment and an expedited appeal to the U.S. Court of Appeals for the 9th Circuit. Whether the ruling will remain in place remains to be seen, but investors are pricing in risk.
From a technical standpoint, the stock closed the gap made on April 16 as it gave up much of its gains from the past two months. The relative strength index (RSI) fell near oversold levels with a reading of 34.04, but the moving average convergence-divergence (MACD) accelerated its downtrend. These indicators suggest that the stock could see some consolidation before resuming its downtrend.
Traders should watch for some consolidation around the 61.8% Fibonacci retracement level at $68.85 over the coming sessions. If the stock breaks down from these levels, the next Fibonacci support lies at the 78.6% retracement at $63.27. If the stock breaks out higher, traders could see a move back toward recent reaction lows at around $76.00, although that seems less likely to occur given the recent bearish sentiment.
Author holds no position in the stock(s) mentioned except through passively managed index funds.