SWKS Sock: The Bull is Back
Skyworks Solutions Inc (NASDAQ:SWKS) stock is another great example of using trend-following etiquette as a simple way to capitalize and structure a trade.
When I say simple, I really mean it. One indicator specifically has worked especially well for Skyworks stock. I am not saying that any one indicator is suitable to create a strategy. I am just implying that this indicator has been especially effective in maintaining a trading bias.
This trend-following indicator would have suggested traders enter a long position in SWKS stock in July 2013, at $22.00, and then exit the position in August 2015, at $84.00. This indicator netted a return of 281% over a two-year span.
The reason why I am focusing on this indicator is that, as of August 17, it has signalled a new bullish bias for Skyworks stock.
The following chart illustrated the indicator in question.
Chart Courtesy of StockCharts.com
The indicator I have been referring to is the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When a share price is above the moving average, it is bullish; when a share price is below the moving average, it is bearish.
If one were to just assume a long position when shares were trading above this moving average, they would have done very well. There were some instances when SWKS stock whipped through the moving average; this would have caused excess trading fees and possibly small losses, but those are the costs of trading. One hopes to keep their losses small and let their gains run.
My strategies never allow one indicator to be the tell-all, so I have added another indicator to support the bullish thesis. The following chart illustrates the accumulation/distribution line (accum/dist).
Chart Courtesy of StockCharts.com
The accumulation/distribution line is an indicator 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. It is similar to the 0n-balance Volume (OBV) indicator, but with one exception. The cumulative volume that is added each day is in relation to where the stock closed compared to the high and low of the day. The relationship creates a multiplier between the values of 1 and -1. This number is then multiplied by the volume and then is added to the previous day’s value. The data is then plotted on a chart.
Some argue that this indicator is better than the OBV because the cumulative volume that is added is directly in relation to where the stock closed compared to the day’s trading range, thus creating a better representation of money flow. The OBV on the other hand will add or subtract the entire day’s volume even if the stock closed up or down $0.01 on the day.
This indicator is now at a new all-time high, yet the share price is not. The indicator is signalling that the bullish camp is acquiring shares of SWKS stock, and the money flowing into the position is greater than the money flowing out. This is good sign for those who are bullish and support the current break above the 200-day moving average.
Bottom Line on SWKS Stock
The 200-day moving average serves as a great trend-following signal for those who trade SWKS stock. I have my own personal biases, and I will never allow one signal to be the tell all. I have added the Accum/Dist signal to support and confirm the current break of the moving average. At this juncture I am bullish on Skyworks stock.