Skyworks Solutions: Oversold And Hitting Support At The Lower Rail Of A Trend Channel

From the end of 2018 through its high in April, Skyworks Solutions (SWKS) saw its stock gain over 200%. There were up and down cycles throughout that stretch, but we see a trend channel formed in the second half of 2019 with the lower rail connecting the lows from September ’19, the lows from Q4 2020, and the recent low. The big drop in the first quarter of 2020 saw the stock break below the lower rail by a considerable margin, but that was during the overall market meltdown.

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This pattern is one I have seen on a number of stocks and I believe the decline in early 2020 was an anomaly that we have to look past—a black swan event. We see how the pattern was in place before the virus shocked the financial markets and has now picked up now that things are returning to normal. The upper rail of the channel isn’t as tight as the lower rail, but it still reflects the overall trend in the stock.

Over the last month, the stock has declined in three of the last four weeks and the weekly stochastic indicators are entering oversold territory and it’s the first time since March ’20 that the indicators have been this low. Before that, we have to go back to May ’19 to find the indicators as low as they are now. In both of these past two instances where the stochastic indicators were this low, the stock rallied sharply in the ensuing months.

Strong Profitability Measurements Highlight the Fundamentals

As much as like the chart and how it is setting up, the fundamentals are strong as well and that is part of the reason the stock is rated as a “strong buy” on the Tickeron Scorecard right now.

Skyworks reported fiscal second-quarter earnings results back on April 29. The company saw earnings jump 77% compared to Q2 2020 while revenue jumped 53%. Analysts expect earnings to increase by 68.4% for 2021 while revenue is expected to increase by 49.1%. Those growth rates are big increases compared to the last three years. Over the last three years, the company’s earnings have been flat while revenue has declined by 1% per year.

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