Skyworks Solutions, Inc. (NASDAQ:SWKS) is moving higher Friday. But that may not be the case for long.
The shares are extremely overbought. They are also close to a resistance level. These can be bearish dynamics. This is why Skyworks is the Stock of the Day.
Many trading models and strategies are based on the concept of reversion to the mean. If shares get pushed above their typical or normal ranges, it will draw sellers into the market.
They will be anticipating a reversion or a move lower. Their selling can put downward pressure on the shares.
One of the tools traders use to determine if a stock is overbought is the Relative Strength Index (RSI). It is on the bottom part of the chart.
If the blue line is above the red horizontal line, like it is now, it indicates overbought conditions.
Skyworks is also just above a resistance level. This can be another bearish dynamic.
If a stock is moving higher, it is because there aren’t enough sell orders to fill all of the buy orders. Investors and traders who wish to purchase shares are forced to outbid each other to win sellers’ interest.
This can force the shares into an uptrend.
When they reach a resistance level, the tide turns. There are enough sell orders to fill all of the buy orders. This stops the uptrend.
As you can see on the chart, there has been resistance for Skyworks around $84.40.
Sometimes stocks reverse and head lower after they reach resistance. This happens when some of the sellers who created the resistance become anxious and impatient.
They are afraid other sellers will undercut their prices. As a result, they reduce their offer prices. Other sellers see this and do the same.
Skyworks shares are strong for now, but they could be about to reverse.
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