If you read my piece yesterday on Real Money Pro, it may have sounded like we were on the highway to bull heaven with all of the semiconductor names. But that is not the case. Sometimes, the best play in a strong group is to find the weakness.
That weakness in semiconductors has a name: Skyworks Solutions (SWKS). This one didn't come onto my radar until after the close, last night, when I was looking through some bearish scans. But when I look at this daily chart, I see plenty to worry about here -- and the possibility of buying this one $5 or $6 lower as we come into earnings at the end of the month.
While Skyworks sported a similar bullish flag pattern as many semiconductors heading into yesterday, that flag has failed. Now, we have a stock not only breaking lower from the bullish flag, but also trading below its 8- and 21-day Simple Moving Averages (SMAs). My fear is we'll see the 8-day SMA cross bearishly under the 21-day SMA this week. While it hasn't been the end of the world, the stock has traditionally performed much worse in this setup, which is somewhat logical since it is signally short-term weakness. Furthermore, we have a bearish crossover in the longer term Moving Average Convergence Divergence, signaling trend is now failing rather than consolidating.
When I focus back on the shorter-term momentum picture, the Full Stochastics has not only crossed over bearish, but also fallen under 80. This has been a very bearish event on the short term, and gives support to the thesis of the $5 to 6 drop. The one positive here is that the longer-term StochRSI is still above 0.80 and above the 50-day SMA. However, this could change with another day of weakness like we saw yesterday, and what we are seeing this morning.
Skyworks is another one of those names often tethered to Action Alerts PLUS holding Apple (AAPL). It had traded with a correlation near 1.00 throughout all of March, but we're seeing that fade in April. Again, this has not been a bullish sign, which has me shorting SWKS this morning around $75.00. I'm not a big fan of shorting a fast mover like SWKS, so I will limit my position size here to 2%. Skyworks has the off-chance of being acquired or announcing wins on projects, so I want to tread carefully.
Given earnings are only a few weeks out, I won't hold shares short into earnings, but will re-examine it shortly before. My stop will be $79.10 on this play with a target of $70.10 initially followed by $68.