Analog Devices, Inc. (ADI) reports fiscal fourth quarter earnings in Tuesday's pre-market, potentially offering actionable insight into the Apple Inc. (AAPL) supply chain and the participation of suppliers in the iPhone X's success or failure. Many of these suppliers' stocks have posted mixed results so far in 2017, failing to match the tech icon's breakout to an all-time high while highlighting growing risk if iPhone X sales fail to please shareholders.
Analog Devices CEO Vincent Roche is quick to point out that the company is more than an Apple supplier, manufacturing a variety of innovative products that include autonomous driving chip sets, but market players understand that the Cupertino connection has a major impact on Analog Devices' share price. The same holds true with Skyworks Solutions, Inc. (SWKS) and Cirrus Logic, Inc. (CRUS), filling out a trio of blue-chip suppliers vulnerable to its master's product development. (See also: 10 Major Companies Tied to the Apple Supply Chain.)
Analog Devices, Inc. (ADI) shares hit an all-time high at $103 in 2000 and sold off to a nine-year low in the mid-teens in 2009. The stock has spent the past eight years recovering those losses in a stair-step rally that stalled within 10 points of long-term resistance earlier this month. The stock has dropped into a trading range since that time as the weekly stochastics oscillator grinds out an intermediate sell cycle that could last into mid-December.
November price action is testing resistance at the June 2017 high at $90.49, with a rally above $93 confirming a breakout while setting the stage for the uptrend to complete a 100% retracement into the multi-decade high. Conversely, a breakdown through range support and the 50-day exponential moving average (EMA) at $88 would reinforce range resistance, opening the door to a steeper decline that may not stop until the low $80s. (For more, see: Why Analog Devices Stock Is a Favorite for Big Investors.)
Skyworks Solutions, Inc. (SWKS) stock ended a powerful uptrend at $78.25 in 2000 and sold off in a brutal decline that bottomed out in the single digits in 2002. It returned to the prior decade's high in 2015 and broke out, lifting above $100 and rolling over in an intermediate correction that ended in the mid-$50s in the first quarter of 2016. The stock completed a round trip into 2015 resistance in June 2017 and dropped into a narrow trading range that has now completed two-year cup and handle breakout pattern that also forms the handle of a 17-year cup and handle pattern.
This bullish fractal alignment predicts a powerful breakout that doubles the stock's price in coming years, highlighting the importance of upcoming performance data on other Apple suppliers. It is hard to time these long-term setups, so traders should exercise caution with short-term positions because the stock is currently engaged in a weekly sell cycle that could last into December or January. (See also: Apple's Chip Suppliers Are Breaking Out.)
Cirrus Logic, Inc. (CRUS) topped out at $61.13 in 1995 and failed 2001 and 2012 breakout attempts. Higher lows carved in 2013 and 2014 generated a bullish platform, ahead of a strong 2015 uptrend that reached long-term resistance once again in the fourth quarter of 2016. Rally momentum then died, generating more than 11 months of sideways action between the upper $40s and the low $70s.
This is a dangerous technical setup because the stock has carved the partial outline of a head and shoulders topping pattern, with the neckline at $50. A breakdown would signal the third failure at long-term resistance in the past 22 years, presaging a much steeper decline that could eventually test long-term support in the mid-teens. Adding weight to this bearish scenario, on-balance volume (OBV) topped out in June 2017, giving way to a distribution wave that may signal a progressive exodus by institutional shareholders. (For more, see: Cirrus Logic Q2 Earnings and Revenues Top, Shares Up.)
The Bottom Line
The Apple supplier universe has become a stockpicker's arena, favoring strong performers that include Analog Devices and Skyworks Solutions, while Cirrus Logic may have ground out a long-term topping pattern that could attract aggressive short sales. (For additional reading, check out: Analyzing Apple's Bargaining Supplier Power.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>