While the stock market is still getting its sea legs, the strength in the Dow Jones Industrial Average can't be denied. Still, taking profits when you have them remains important for swing trading. A recent trade in GM stock didn't end up positive but the early profit-taking reduced the loss.
Strength In Dow Jones Industrial Average
You don't usually think of the Dow Jones Industrial Average as a pond to fish for swing trades. Though General Motors is no longer on the Dow Jones index, it held a spot for one of the longest stints before its departure in 2009.
It's not an aberration. On Friday, Boeing, a current Dow Jones stock, joined SwingTrader.
Why the interest in what many would consider old stodgy companies? That's where relative strength has flourished recently.
When the market indexes were making new lows for the year (1), GM stock held above its lows from July. Then it went on a steady rise of nearly 30% in just over two weeks (2).
That put GM stock right at its 200-day moving average, where it took a pause. It mostly remained above its 10-day moving average and you can see how closely the 5-, 10- and 200-day lines came together.
Swing Trading Example: GM Stock
When General Motors stock popped back above its 200-day line with increased volume, we put it on Swing Trader (3). It pulled back a little by the close, but the next day came on strong and we took our first third of the position off while we had the profit (4).
It fell the next day and finished near its lows with a slight increase in volume (5). The day after, GM stock tried to make progress above 40 but finished near its lows again (6). Both days were inside the trading range of the large jump above 40; plus it stayed above its 5-day line. But the weak action shouldn't be ignored.
An Exit With A Slightly Better Outcome
When GM stock fell and took out the recent lows, the low of our entry day and multiple moving averages, it was hard to justify holding any longer (7). It's been one of the challenges of the current market that volatility can easily shake you out of your trades.
While the exit was at a loss, it wasn't as bad as it could have been. Why? For one, we don't tend to wait too long to see how bad things get. Quick action to protect capital has led to our significant outperformance this year. But just as important, the earlier profit-taking helped.
Not only did it lead to losing less money in GM stock at the drop, it also increased our average exit price. With defense still paramount, we are still trying to reduce losses wherever we can.
But with the strength in Dow Jones stocks continuing, GM stock hasn't left our radar. It got support at its 21-day line (8) and could be setting up for another potential move.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
