Semiconductor stocks are often looked at as a leading indicator for stocks. While the rally has been impressive year to date some names are now reaching technical resistance of behemoth proportions. To wit, after a 40% rally over the past few weeks shares of Skyworks Solutions (SWKS) are overbought. Bears can now look to take a stab at SWKS stock from a trading perspective.
The latest rally in Skyworks stock came on February 6th on the back of the company’s latest earnings report and news that its board approved a new $2 billion share buyback program. While share buybacks most definitely can be a bullish underpinning for a stock, what’s curious about Skyworks is that they actually guided both below the EPS and top line sales estimates for Q2. For a stock that has rallied more than 40% since early January that is not the kind of news I personally I am looking to embrace by buying the stock.
When using technical analysis as at least part of ones analysis of markets it is in my eye imperative not to base a trade on just one technical parameter alone. The more technical ‘stuff’ comes together at the same time the better the setup. In the case of SWKS stock as we will see on the below charts, lots of things are now lining up together.
On the multi-year weekly chart we see that SWKS stock in the fall of 2018 broke below its red 200 week simple moving average. If we note how well said moving average has held as support in the past it now would not be difficult to imagine it could act as resistance. In fact the rally from February 6th ramped the stock right back into this moving average. Meanwhile and so you know, all the weekly moving averages on this chart are now pointing lower for the first time in a long time.
Moving on to the daily chart we see that the February 6th rally has also pushed SWKS stock right back up to its red 200 day moving average. Note also that the February 6th rally began on a big up-gap at the beginning of the day and was added on top of an already big rally that began early January.
Lastly, from a momentum perspective as measured by the MACD momentum oscillator at the bottom of the chart we see that the stock is overbought to say the least.
Active investors and traders could now look to either sell short SWKS stock around the $86 – $88 area with a first downside target at $80. Any push and hold above $88 on a daily closing basis would be a stop loss trigger. Alternatively, options sellers could look to sell out of the money call spreads on this stock.