2 Must-See Stock Charts This Week

U.S. Steel (X) and Skyworks Solutions (SWKS) stocks present interesting technical set-ups ahead of earnings this week

CMT, Senior Market Strategist
Apr 24, 2017 at 3:24 PM
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Earnings season is in full swing this week, with a number of notable companies on the docket. However, two stocks in particular are on my radar right now: metals magnate U.S. Steel Corporation (NYSE:X), which reports after the close on Tuesday, and Apple supplier Skyworks Solutions Inc (NYSE:SWKS), which will unveil its quarterly report after the close on Thursday. Below are the reasons I'm keeping a close eye on the shares of X and SWKS. 

Beware a Possible Delta-Hedging Decline for U.S. Steel (X)

The steel sector has been volatile this year, due to iron ore prices plummeting in recent weeks from an oversupply in China, which became mainstream news last week just as iron ore futures bottomed. The SPDR S&P Metals and Mining ETF (XME) is off 12% from its 52-week high, but is fractionally higher year-to-date.

X stock is roughly 24% from its 52-week high of $41.83, which formed in mid-February. In fact, the shares have retraced approximately 50% of their post-election rally, but were last seen up 3.6% at $31.51, thanks to an upgrade to "neutral" from "underperform" at Macquarie. The stock's 40-week moving average and late July peak could provide support on the charts.

us steel x stock chart

Chart courtesy of StockCharts

 

Since August, short interest rapidly decreased 55% and sits at a multi-year low. Short interest currently represents about 12% of X's float, but based on the equity's average pace of trading, would take just one day to buy back. Since September, the percentage of analyst "buys" went from 8% to 58% -- a multi-year high -- further reflecting the building optimism in the shares.

Meanwhile, call buying has dominated during the past 10 trading days. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio sits at an annual high of 2.68. Still, a potential risk to the longs is a delta-hedging decline based on the stacked put open interest in the front three months of options, down to the 25 strike.

Skyworks Solutions (SWKS) Could Hit Record Highs

The Dow Jones U.S. Semiconductors Index is up 7% year-to-date, and 39% year-over-year. Meanwhile, semiconductor stock SWKS has rallied 40% so far in 2017, and 46% in the past 12 months. The stock notched a fresh annual high of $105.34 earlier today, and isn't far from its all-time peak of $112.88 set in 2015, with the shares accelerating into the upside in front of Skyworks' earnings report in just a few days. I could see a run higher past the 2015 high, which is approximately double SWKS' 2016 low. 



skyworks swks stock chart
Chart courtesy of StockCharts


Short interest continues to slide lower as SWKS bears scramble to cover. Just over 5% of the stock's float is now sold short. However, it would still take these skeptics more than seven days to repurchase the remaining shorted shares, at SWKS' average daily trading volume -- plenty of fuel for a potential short squeeze.

Since March of last year, the percentage of analyst "buy" ratings went from 100% to 67%, showing growing skepticism toward SWKS. Another positive earnings reaction -- SWKS rallied 13% the day after its last earnings report -- could fuel upgrades. On average, Skyworks Solutions has moved 6% the day after reporting, going back eight quarters.

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