SWKS Stock: Bullish View Vindicated
Skyworks Solutions Inc (NASDAQ:SWKS) reported first-quarter earnings after the close of trading on January 19, and it beat on both the top and bottom lines. If this news was not great on its own, Skyworks threw in a $500.0-million stock repurchase program as a cherry on top. Investors stood up and applauded this news by sending SWKS stock soaring by 7.7% in after-hours trading.
I can’t say that I am even slightly surprised by this bullish price action because I have been bullish on SWKS stock since I published my report in August: “Skyworks Solutions Inc: SWKS Stock is Setting Up for a HUGE Rally.” My views in this report were derived using technical analysis. Technical analysis uses past volume and price data to discern trends and forecast future prices.
At the time I wrote that report, there were a couple of signals which indicated that SWKS stock was actively being accumulated, and that the bearish trend in Skyworks Solutions stock had reversed.
Very little occurred since that publication, as Skyworks Solutions stock traded sideways in an orderly manner, while bullish indicators continued to mount.
The following SWKS stock illustrates a couple of bullish indicators that support a bullish price advance.
Chart courtesy of StockCharts.com
There are two key indicators that I have highlighted on the Skyworks Solutions stock chart above. The first signal is generated by two simple moving averages, and the second signal is the accumulation/distribution line in the lower panel.
The first signal uses the the 50-day and 200-day moving averages to create a simple indicator that many traders employ. This signal confirms whether a trend is bullish or bearish. A golden cross indicates that a bull market is on the horizon, while a death cross indicates that a bear market is on the horizon. A signal is generated when the faster-moving average (50-day moving average) moves above (generating a gold cross) or below (generating a death cross) the slower-moving average (200-day moving average). The golden cross and death cross are exact opposites of each other.
These signals have served traders well. In September 2015, a death cross was generated and SWKS stock proceeded to sell off 38% in the months ahead, until a bottom was finally put in. One year later, in September 2016, a golden cross was generated, and Skyworks Solution stock has trended higher ever since.
The second signal was generated using the accumulation/distribution line that uses volume to compute buying and selling pressure. Traders refer to this as money flow. It is produced by cumulatively adding volume on up days and subtracting volume on down days in relation to where the stock closed compared to the high and low of the day.
When SWKS stock was trending lower, this signal line was trending higher. This positive divergence indicated that investors were actively accumulating Skyworks Solutions stock because more money was flowing in versus flowing out.
The following Skyworks Solutions stock chart illustrates the bullish price action that preceded the earnings beat.
Chart courtesy of StockCharts.com
The price action going into earnings was constructive and healthy. For a trend to fulfill this criteria, it must contain impulse waves that advance the price and consolidation waves that unwind any overbought conditions and set up the next impulse wave.
A new bullish impulse wave is set to develop when the price exits the consolidation in an upward direction. The reaction to earnings is going to cause Skyworks Solutions stock to gap open higher. If after-hours trading is any indication of where SWKS stock is going to trade on Friday, January 20, then a new impulse wave is now set to develop.
The great thing about this type of price action is that it not only identifies the trend, but also suggests a potential price objective. The theory behind impulse waves separated by a consolidation wave is that the impulse waves tend to mirror each other in terms of length, and the consolidation wave acts as a midpoint. This gives the price action symmetry. Applying this theory to the chart above produces a potential price objective of $94.00 on Skyworks Solutions stock.
Bottom Line on SWKS Stock
I was bullish on Skyworks Solutions stock going into earnings, and now that SWKS stock is set to trade higher off of earnings, my bullish view has been vindicated and I expect higher prices to follow.