Apple Inc. (AAPL) suppliers Skyworks Solutions Inc (SWKS) and Qorvo Inc (QRVO) were getting chipped away at Monday on a couple of troubling reports.
Worse yet, if the SWKS and QRVO stock charts have any sway, more menacing technical trouble is on its way — not unlike what AAPL is seeing these days.
Shares of SWKS were bucking a resilient broader market during Monday’s session as it slipped by about 0.4%. Fellow Apple chip supplier QRVO was also pressured and gave back 1.2%. For its part, AAPL came out of Monday’s session even more bruised, as shares slumped by 2.2%.
Reports warning of weak Apple iPhone demand and lower production from the Nikkei Asian Review and analysts at Maybank, as well as a fresh “hold” ratings from Cowen for both SWKS and QRVO, were reasons behind Monday’s divergent stock action.
The good news for QRVO and SWKS is one day doesn’t make a trend. The bad news is the bearish trends have been developing for quite some in both of these AAPL plays. And the better news is, following lengthy counter-trend rallies, both SWKS and QRVO are offering bearish traders low-risk, high-reward spots for initiating positions.
Skyworks Solutions Inc (SWKS)
Looking at the weekly chart of SWKS, the trend is down, as confirmed by a simple inspection of this AAPL stock’s lower lows and lower highs.
Most recently, a counter-trend rally in SWKS appears to have stalled and a resumption of the downtrend looks imminent.
In our technical opinion, Fibonacci resistance, overhead price congestion, SWKS’ former high from 2000 and shares remaining in bear territory below the 200-day simple moving average have proven too formidable.
Lastly and supportive of lower prices in SWKS, a recently confirmed topping hangman candle and overbought RSI crossover gives bears a nice low-risk, high-reward setup in this AAPL stock.
SWKS Bear Put Vertical
For bearish positioning in this AAPL supplier, the SWKS May $72.50 / $65 bear put spread is attractive. Priced for $2.40, the SWKS vertical limits risk to the debit paid and compares to a max payout of $5.10 if shares are below $65 at expiration.
As an outright May $72.50 put costs $3.70, the 35% savings using this SWKS spread are substantial.
Further, as earnings are set for late next week (a couple days after AAPL’s own report on April 25), the opportunity to reduce time decay and volatility risks is always worth consideration.
Qorvo Inc (QRVO)
Our second AAPL play is recent IPO QRVO. While its price history isn’t as long, its downtrend and overhead resistance certainly look authoritative and like it’s readying for lower prices.
Since QRVO broke to all-time lows last summer, the recent IPO hasn’t looked back and has continued to underperform AAPL.
And similar to SWKS, this Apple supplier has also confirmed its counter-trend rally is finished after stalling against Fibonacci and channel line resistance.
QRVO Bear Put Vertical
With earnings less than three weeks out, a bear vertical is also an appropriate choice here due to its risk-reducing capabilities, flexibility and attractive returns.
Reviewing the QRVO options board, the May $45 / $40 bear put spread for $1.80 is positioned nicely to take advantage of the primary downtrend reasserting itself.
A retracement just in excess of 50% from QRVO’s February low to recent high would capture the max profit of $3.20 for a return of 177% at expiration for this bearish-looking AAPL stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
