A dark pool buy order was detected in QCOM stock on January 17, 2020. We seldom call a dark pool trade a buy order but the evidence is overwhelming.
QCOM stock price immediately took a sharp turn higher after the dark pool print. Another reason we think this dark pool trade was a buy order is that we had bullish options flow front-running the dark pool print.
We had a lot of Bull Call spreads on January 17, 2020.
A Bull Call debit spread is a long call options spread strategy where you expect the underlying security to increase in value. Within the same expiration, buy a call and sell a higher strike call. Risk is limited to the premium paid (the Max Loss column), which is the difference between what you paid for the long call and short call. Profit is limited to the difference in strike values minus the credit. The bull call strategy succeeds if the underlying security price is above the higher or sold strike at expiration.
There was some fear that Apple was totally ditching Qualcomm for its own modems but that fear has been pretty much put to rest. On January 17, 2020, Raymond James analyst Chris Caso told investors in a research note that he believes Apple (AAPL) has made a design change with respect to the 5G mmWave module for iPhone 12, with his firm’s latest checks suggesting Apple decided to move from a turnkey Qualcomm (QCOM) solution to a module that Apple will outsource on its own, still however using Qualcomm components. Caso says he believes this change will significantly reduce the BOM cost for mmWave to ~$20 from about $50 with the Qualcomm turnkey solutiom, which will greatly reduce the entry barrier for mmWave phones and provide Apple with a competitive advantage due to its comparatively lower cost for that technology. While the revenue to Qualcomm will be lower than what it would have been if Apple had adopted its turnkey solution, Caso expects the mmWave component sales will still represent $150M-$200M incremental annual revenue and he doesn’t believe this is figured in to consensus expectations.
Also on January 17, 2020, Citi analyst Christopher Danely upgraded Qualcomm to Buy from Neutral with a price target of $108, up from $89. Chris increased his estimates and upgraded the shares as the “long-awaited 5G ramp begins to take shape.” He expects upside to both revenue and margins for Qualcomm going forward given share gains in 5G, higher selling prices, and increased royalty revenue. Danely notes that during the last upgrade cycle, Qualcomm revenue increased over 20% and royalty rates stabilized.
What’s Next? Make Sure To Review This Lesson On Dark Pool Trading!