What can be better than a breakout in a confirmed uptrend? In this market environment, it's the swing trading opportunities of early entries. Why? A lot of breakout failures are making progress harder as NOW stock demonstrates.
Early Entry Starts NOW Stock On The Right Path
The enterprise software group was one of the hardest hit of the 2022 bear market, and arguably the weakness started in 2021. But more stocks in the group are showing signs of life and the group's six-month performance has at least put it in the upper half of 197 groups tracked by IBD.
ServiceNow is among enterprise software stocks that recently moved back above the 200-day moving average line, in March (1). But at the time of the March 29 market follow-through day NOW stock was still below its 50-day moving average line and volume was also lackluster (2).
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That changed a couple of days later. NOW stock jumped above its 50-day line, volume surged well above average and the relative strength line made near-term highs (3).
That strength earned NOW stock a spot on SwingTrader even though it still had a ways to go for a traditional breakout. The early entry afforded by the break of the downtrend was preferable in our analysis.
Locking In Early Profits
Taking off a portion of a position into strength remains a steadfast rule in this environment. It was no different for NOW stock. When it gapped up on April 4, we took the chance to lock in profit with a 3.5% gain from our entry (4). That helped ease the pain a little when NOW stock pulled back over the next few days.
April 6 saw NOW stock breach its 5-day moving average line but close above it by the end of the session (5). The action was similar on April 10 with support near its 10-day moving average but still closing above its 5-day line (6). Having a smaller position and some gains locked in helps. You can still give the trade room but end with a positive result because of the earlier profit taking.
Another Breakout Fakeout
Surviving the pullback was rewarded on April 13 with a traditional breakout at 482.43 from a cup-with-handle base (7). Volume was above average but nowhere near the levels seen on our early entry.
In an all too frequent occurrence in the current market environment, the breakout looked vulnerable a day later (8). NOW stock breached both its 5- and 10-day moving averages and closed below them. It got support at its 21-day moving line but that was after dropping 5.8% from the breakout entry on volume far surpassing the recent positive days.
We exited early in the session as NOW stock approached our entry price and still maintained a 1.5% gain for the trade. The early profit taking helped but more than that it was our early entry over the breakout that made the trade successful.
That's not to say the breakout is dead forever. But early entries are what's being served and successful right now.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
