Skyworks Solutions

Semiconductor firm Skyworks Solutions ( SWKS) has been getting a lot of investor attention in the last few months, thanks in no small part to the nearly 60% rally that shareholders have enjoyed so far in 2012. Here's how to know if buyers of SWKS are in store for bigger gains:

Right now, this stock is forming a rectangle pattern, creating what I like to call an "if/then trade." Put simply, a rectangle is a pattern that's bounded by horizontal resistance above shares and support below them. Rectangles are common after big moves (like the one in SWKS this year) because they represent consolidation, a chance for traders to mentally absorb the big price moves in shares before they plan their next steps. For SWKS, the important levels to watch are resistance at $29 and support at $23.50.

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Put simply, if shares break out above $29, then the stock is a buy. Otherwise, if shares fall below $23.50, then SWKS is a short candidate.

Volume has been declining as the pattern progressed, a good sign. We'll want to see higher volume when SWKS breaks out of the pattern; that indicates that buyers are participating in the breakout.

As of the most recently reported quarter, Skyworks was one of the top holdings at Lee Ainslie's Maverick Capital.

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