I’m using my Volatility Portfolio pick Cirrus Logic (CRUS) as an indicator of the trend in technology stocks–particularly chip stocks–through the end of 2019. (I track this portfolio on my subscription sites JubakAM.com and JugglingWithKnives.com.)
And right now that indicator is pointing up.
On November 1, the company’s shares jumped to $72.43 from $58.49 on way better than expected earnings. That was a 23.8% move to the upside.
But it’s what has happened since then that I think is the most important indicator of a trend in the sector and for chip stocks. In the days after that huge move to the upside, the shares sold off a bit, falling to $68.01 on November 4.
Completely to be expected. After a big 24% gain, you’d expect some profit taking.
What’s important, though, is that the profit taking stopped relatively quickly. Today the shares closed up 3.46% to $71.13. That’s a recovery almost to the post-earnings report high.
One important indicator, in my opinion, in judging the strength of a trend is a willingness of investors and traders to continue to buy even as the share price climbs. The lack of more selling at the post-earnings high and the recovery to near that high tell me that investors and traders think Cirrus Logic is going up further from here.
The argument isn’t too arcane. The third and fourth quarters are the strongest in the year for tech company revenues. Apple is looking at a strong December quarter for sales of the iPhone 11 and Cirrus Logic is a big Apple supplier. So it’s certainly worth holding Cirrus Logic shares through the end of the year and into the January earnings season.
At least that’s the case unless the U.S.-China Part 1 trade deal blows up spectacularly. Mere worries about the deal, as we had today, don’t seem enough to reverse the trend in Cirrus Logic or in other Apple suppliers such as Skyworks Solutions (SWKS), up 1.72% today or Apple (AAPL) itself, up 0.27% on the day.